Some are worried that both the European Union and the U.S. could place more sanctions on Russia, which is the largest producer of palladium in the world, the media outlet reported. In the event that the jurisdictions provide these punishments, supply of the commodity could decline.

Palladium-based ETFs could boost demand

In addition, demand could increase as a result of the plans that market participants have to offer two palladium-backed ETFs in South Africa, according to The Wall Street Journal. The investors in this particular nation might be rather well-informed in terms of the precious metal. South Africa provides more than one-third of the global supply of the metal, and people in the African nation are familiar with its use in autocatalysts and also jewelry.

Barclays Plc. unit Absa Bank Ltd. has plans to list one of these ETFs, NewPalladium, on March 27, Bloomberg News reported. UBS AG noted how all these factors are having an impact on the commodity in a recent report.

“A perfect storm has been brewing for palladium this month,” the company stated, noting the concerns about Russian supply, striking workers in South Africa and the impact of the new ETF, according to the news source. “If no resolution is found in South Africa in the next few weeks, we think metal tightness will only intensify if producers are forced to source metal in the market.”

Impact of interest rates

Although palladium prices have surged to their highest in 31 months, they could easily face headwinds as a result of rising interest rates. Market participants have become more concerned about these borrowing costs as a result of statements made by Federal Reserve Chair Janet Yellen.

Yellen announced at the end of the recent Federal Open Market Committee meeting that the central bank was cutting its regimen of monthly bond purchases to $55 billion per month. In addition, she stated that the central bank could increase its benchmark interest rates as soon as six months after it stops buying debt-based financial instruments.