Palladium prices have hit a two-year high, up three per cent at one point on fears tension between Russia and the West over Ukraine will hit supply.
Palladium prices have jumped to their highest level in two years on fears that top exporter Russia will retaliate against US sanctions by cutting exports of the precious metal.
Palladium for June delivery, the most actively traded contract, rose as much as 3 per cent, or $US24, to $US800 a troy ounce on the New York Mercantile Exchange, its highest level since September 2011. The contract closed at $US789.30 an ounce.
President Barack Obama ordered a second round of sanctions on Thursday against Russian officials and a bank, raising the stakes in the confrontation over Russia's annexation of Ukraine's Crimea region.
Investors fear that Russia may strike back by reducing exports of some of its commodities. Russia is the world's biggest supplier of palladium, a key component of exhaust filters that keep cars running cleanly.
The sanctions come at a particularly nervous time for the palladium market. Miners in South Africa, the world's second-largest supplier of palladium, have been striking for eight weeks.
Meanwhile, two of South Africa's biggest banks, Standard Bank Group and Absa Capital, said they would each list palladium exchange-traded funds next week, potentially boosting investor demand for the metal. A platinum ETF launched in South Africa last year drew large amounts of that metal into its vaults, further tightening global supplies.
"They're launching an ETF on palladium when there are serious questions about the two largest suppliers of the world's palladium," said Peter Hug, global trading director at Kitco Metals.
"It just looks like the market is getting squeezed in a very big way."
The palladium futures market is small relative to other commodities such as gold, with outstanding contracts worth $US3.3 billion ($A3.66 billion). Russia supplies 42 per cent of the world's palladium and South Africa supplies 37 per cent.
Russia has for years held sway over the global palladium market, due to a combination of government sales and robust mine output. The country had amassed a large hoard of palladium during the Soviet era, which it has gradually sold off. Russian officials have maintained that stockpile levels are a state secret. Some analysts, however, believe that Russia's stockpiles are dwindling.
With stocks of Russian palladium already low, an interruption of exports would probably not upend markets, said KC Chang senior economist at IHS, a global consulting firm.
"Economic sanctions on Russia are unlikely to have much impact, as supplies were already stretched to begin with," Chang said.
Still, market participants are nervous.
Although an interruption of palladium exports is unlikely, "it is still in the back of everybody's mind," said a manager at a precious-metals trading firm.
"Putin has certainly proven he's a wild card," he said, referring to Russian President Vladimir Putin.
The latest sanctions against Russia helped buoy the price of gold as well, with gold for April delivery closing up $US5.50 at $US1,336 an ounce on the Comex division of the New York Mercantile Exchange. Some investors use gold as a hedge against economic and political uncertainty.