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Investing.com -- In a note to clients this week, UBS raised its palladium price forecasts by $100 per ounce across all tenors, citing expected declines in Canadian mine production.
However, the bank continues to hold a negative outlook on the metal due to weak demand from the auto sector.
“After platinum, palladium is the second-best-performing precious metal this year, up 37%,” UBS said in a note. “Supply disruption concerns and short-covering activity likely lifted the metal.”
UBS analysts highlighted a short-covering rally in futures markets, with non-commercial short positions falling from 1.9 million ounces in April to 1.1 million ounces, while long positions increased slightly to above 0.9 million ounces.
“Positioning remains marginally net-short, far from the extreme short level of almost 1.1 million ounces,” they said.
Geopolitical and supply-side risks are also said ot be adding to price volatility.
“US President Trump has threatened to impose secondary tariffs on buyers of goods from Russia,” the world’s top palladium producer, UBS said.
Additional concerns stem from potential tariffs on South Africa, the second-largest producer, according to the bank.
Meanwhile, the analysts noted that Impala Canada announced plans to halt production at its Lac des Iles mine by May 2026, which currently supplies around 0.2–0.25 million ounces annually.
Despite these supply concerns, UBS warned that palladium remains a high-risk asset. “Only investors with a high risk-tolerance should consider trading palladium, given its low trading volumes and limited market size.”
The bank expects headwinds to persist, noting that “over 80% of palladium demand comes from their use in gasoline-powered vehicles,” and U.S. auto industry production remains under pressure from tariffs.