Palladium prices reached a record high in 2017

The average price of palladium this year is set to hit its highest level since records began 30 years ago, after rising to a 16-year high last month. A survey of 26 analysts and traders this month showed that spot palladium prices are expected to average $811 a troy ounce this year, up 5 per cent from $770 in early April.

       Palladium rallied at the end of June, hitting a high of $914.70 a troy ounce, narrowing the spread with platinum to within the $50 range. "We remain optimistic about the price outlook for palladium," said Suki Cooper, analyst at Standard Chartered. "The market is expected to be undersupplied not only this year but also in the coming years."

       Palladium is expected to continue its rally next year, averaging $849 a troy ounce. Palladium prices averaged $799 a troy ounce in 2014, a record high so far. Prices have been well supported this year on expectations that tighter emissions controls could boost demand for the metal from the automotive industry.

       Precious metals smelter Johnson Matthey said in May that the palladium market is expected to see a supply gap of 792,000 ounces in 2017, up from 163,000 ounces last year. Meanwhile, investment banks cut their platinum price forecasts by 5% to $955 an ounce, down from a forecast of $1,007 in April. Johnson Matthey forecasts that the platinum market will be oversupplied in 2017 for the first time in six years. Jewellery demand in China, the main market, is expected to be sluggish, as consumer spending has shifted to other luxury items such as overseas travel in recent years, weighing on jewellery demand.

       Platinum has lagged behind palladium this year, leading some analysts to predict that the price of platinum, which has averaged $470 above palladium over the past 30 years, could match this year for the first time since 2001. "Platinum positions are very short and palladium positions are very high, indicating that hedge funds are shorting the platinum/palladium price ratio," said Carsten Menke, analyst at Julius Baer.

      "While we don't think platinum is seriously undervalued at the current level, we think the price of palladium has risen too fast and too high. It is possible that platinum and palladium prices will be flat, but it should not last."

       The survey shows that palladium prices are expected to be at $1,050 an ounce next year.