Palladium rose above $3,000 an ounce for the first time on Friday as the market worried about a shortage of the metal embedded by automakers in exhaust pipes to neutralise emissions.
Palladium was up 0.8% at $2,976.49 an ounce at 1010 GMT after reaching $3,007.73. Prices have shot up over 20% since March 16 when top producer, Russia's Nornickel announced that flooding at two of its mines would reduce output.
"Palladium has been in a structural deficit for 10 years. We have seen above ground inventories falling to very low levels," said UBS analyst Giovanni Staunovo. "(Palladium) can be very illiquid and this is making the moves even more crazy. This rally can continue, particularly if car sales start to improve," he said.
Demand from the auto industry is rising and expected to climb further as a semiconductor chip shortage that has curtailed production eases later this year.
But Commerzbank analyst Carsten Fritsch said prices were unlikely to remain above $3,000 and would begin to fall as automakers switch from palladium to cheaper platinum. "At this (price) level more and more car manufacturers will think about substitution," he said.
Tightening environmental rules have forced automakers to use more and more palladium in their gasoline engines in recent years but substitution and a shift to electric vehicles may eventually erode demand.
Meanwhile, spot gold eased 0.2% to $1,767.40 an ounce. U.S. gold futures were steady at $1,767.60.
Gold was nevertheless up 3.5% this month, its best since December, helped by falling returns on U.S. bonds, a competing asset class, and a weaker dollar, which makes bullion cheaper for buyers with other currencies.
The dollar weakened after the Federal Reserve promised to keep interest rates low, but bond yields were higher after President Joe Biden proposed massive state spending and data showed U.S. economic growth accelerated in the first quarter.
Silver fell 0.7% to $25.90 an ounce and up more than 6% in April - its biggest monthly gain since December. Platinum gained 0.7% at $1,205.83.