Palladium Extends Losses

Palladium futures fell to around $1,260 per ounce, remaining under pressure as the dollar hovered near a one-month high and investors awaited the Federal Reserve's policy decision. The Fed is widely expected to keep interest rates unchanged, with markets pricing a 70% chance of a pause and a 30% probability of a 25-basis-point hike, while still expecting a rate increase in September. A stronger dollar made greenback-priced metals more expensive for overseas buyers, weighing on palladium. Meanwhile, Middle East tensions offered little support as markets monitored developments in the Strait of Hormuz after Iran launched missiles at US forces and Gulf states proposed a framework to manage the key shipping route. On the fundamental side, palladium faced headwinds from weakening automotive demand, as rising electric vehicle adoption and continued substitution with platinum weighed on consumption. Over the past month, palladium has gained 4.75% and was up 3.26% from a year earlier.

Palladium futures rose above $1,200 per ounce, rebounding from a near one-year low hit at the end of June, as resilient hybrid vehicle demand more than offset expectations of a global market surplus. Demand for hybrid electric vehicles (HEVs) remained robust as major automakers expanded the use of software-defined technologies to HEVs, which continue to support palladium consumption through their use of catalytic converters. On the other hand, Nornickel, the world’s largest palladium producer, expects a global surplus in 2026, as rising electric vehicle adoption weighs on long-term demand and keeps prices below levels last seen at the start of the year. The Russian miner also plans to relocate its refining operations to Monchegorsk, a move expected to improve production efficiency and increase mined output. Meanwhile, expectations of at least one more Federal Reserve rate hike by year-end reduced demand for non-yielding assets, limiting further price gains.

Palladium hovered around $1,260 per ounce, giving back recent gains as escalating tensions between the US and Iran lifted oil prices and reinforced expectations that the Federal Reserve would keep interest rates elevated. Brent crude remained near a more than one-month high after Iran's Revolutionary Guards said they had struck US military assets across the Middle East, while Yemen's Iran-aligned Houthis declared a naval blockade against Saudi Arabia, fueling inflation concerns. Higher US Treasury yields and growing expectations of another Federal Reserve interest rate hike also added pressure to the broader precious metals complex, with traders raising the probability of a December rate increase to 83% from 73% a week earlier. Losses were capped by expectations of another annual market deficit, with South African mine supply remaining constrained by elevated operating costs, including higher electricity tariffs. Despite the latest moves, palladium remained down 22.81% year to date.