Palladium Rallies: Up 3.9% on Strong Euro

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"The metal is supported by strong auto data out of China."

Palladium is surging in a broad-based commodity rally Monday, trading up 3.9% on a falling U.S. dollar and strengthening fundamentals.

At 1554 GMT, spot palladium traded at $760 a troy ounce—just 2% off its decade high of $776/oz. It recently reached an intraday high of $763.50/oz as the euro jumped against the dollar.

The metal, used widely in vehicle autocatalysts, is finding itself well-supported by strong auto data out of China, a senior London analyst said. Last week the China Association of Automobile Manufacturers announced total auto sales in the country, the world's largest auto market, rose to 1.697 million units in November, up 26.9% compared with a year earlier.

Vehicles in China are mainly gasoline-powered, which use palladium for catalysts instead of platinum, which is much costlier at $1,698/oz.

"We expect that recovering global automobile demand will likely continue to put upward pressure on autocatalyst demand and therefore on platinum and palladium prices," Goldman Sachs said in a report Monday.

Palladium and sister metal silver—which is up 3.4% at $29.614/oz—remain "the precious metals of the hour," German bank Commerzbank said in a daily note.

Palladium is seen as a favorite among the metals for its tightening fundamentals, and in particular fears that Russia, the world's largest producer, has exhausted state stockpiles.

UBS analyst Edel Tully said were there no Russian state reserve deliveries in 2011, market players could likely see prices rally toward $1,000/oz.

Flows into exchange-traded funds have also been strong in recent months, market participants said.

In the week to Dec. 10, palladium holdings in the exchange-traded fund of Zurich Cantonal Bank jumped 5.3%, or 22,461 ounces, to 450,262 ounces, the bank said Monday.

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