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Palladium surged to a record high on Monday as a sustained supply deficit boosted the investment case for the autocatalyst metal, while gold rose to its strongest since April on a lower dollar. Spot palladium hit $1,458 per ounce, its highest on record, and was up 1.6 percent to $1,455 at 10:13 a.m. EST (1513 GMT).

The deficit in the palladium market will widen dramatically this year as stricter emissions standards increase demand, autocatalyst manufacturer Johnson Matthey said in a report last week. "The market is fundamentally strong," Julius Baer analyst Carsten Menke said. "(The) ongoing deficit and autocatalyst producers saying they are not seeing broad-based substitution from palladium to platinum really reinforce the prevailing positive sentiment."

Both metals are primarily consumed by automakers for use in catalytic converter manufacturing, but platinum is more heavily used in the diesel vehicles that have fallen out of favour since the Volkswagen emissions-rigging scandal broke in 2015.

Unlike platinum, palladium has benefited from a switch to gasoline engines and expectations for growth in hybrid electric vehicles, which tend to be partly gasoline-powered.

This has helped the metal largely ignore falling car sales across the globe. "Industrial demand is good, but not booming considering how weak the car markets are. (However) the case for a multi-year deficit is much more compelling, and there is a very good price trend, attracting a lot of investment demand," Menke said.

While prices are likely to climb in the short term, "in the longer term, say the next 12 months, assuming global car sales fail to rebound as the global economy slows, prices will be pushed back," he said.

Meanwhile, spot gold rose 0.4 percent to $1,326 per ounce, having earlier hit its highest since April 25 at $1,327.64. US gold futures rose 0.5 percent to $1,329.10. Helping bullion's advance, the dollar backed away from a two-month high hit last week on rising optimism for a US-China trade deal.

A trade resolution will likely increase the yuan's value and in turn, demand from China, Forex.com analyst Fawad Razaqzada said. "Also, a resolution is dollar negative as the US government will decide to lower import tariffs, which will pull import prices down, causing inflation to fall and reduce the need for the US Federal Reserve to increase interest rates."

Investors will be looking ahead to minutes of the Fed's January policy meeting on Wednesday for further clarity on interest rate hikes this year. Higher rates tend to weigh on non-yielding gold. Among other precious metals, platinum rose 0.5 percent to $805.64 per ounce, while silver gained 0.3 percent to $15.82.

Copyright Reuters, 2019


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