By Zandi Shabalala and Jan Harvey
Palladium jumped more than 7 percent on Wednesday as bets on lower prices were reversed in thin conditions after the metal broke above key chart levels, while gold rose as weak U.S. data weighed on the dollar.
Palladium surged overnight in Asia, hitting 14-month highs. Traders said a wave of short covering was likely triggered after the metal broke above $700 an ounce, and then above last week's 14-month peak of $723 an ounce.
Spot palladium XPD= was up 6.34 percent at $738 an ounce at 1140 GMT, having risen as high as $746.10 an ounce in Asian trading hours. The move was likely to have been exacerbated by thin liquidity, analysts said.
"You can talk about fundamental explanations -- strong car sales, a reduction in supply from Russia -- but those didn't happen overnight," Macquarie analyst Matthew Turner said. "In palladium, you have to think of thin market explanations."
One trader at another bank said: "(This was) a short covering rally, exacerbated by low liquidity."
Palladium, used in catalytic converters in cars, climbed nearly 20 percent last month in its biggest one-month rise in 8-1/2 years. That may mean investors who had bet on lower prices could be exposed to heavy losses.