Gold holds close to 10-month highs

Palladium hit a record high on Tuesday, moving close to US$1,500, due to a prolonged supply deficit, while gold rose to a near 10-month high as rising optimism for a U.S.-China trade deal subdued the dollar.

Spot palladium, which traded as high as $1,491 per ounce, was up 1.3 per cent at $1,476.04 at morning on Tuesday, according to Reuters.

The deficit will widen this year as stricter emissions standards increase demand for catalytic converters, auto catalyst manufacturer Johnson Matthey said last week.

"The palladium market is facing a substantially growing physical deficit ... driven more from the demand side due to rising automotive demand," said Philip Newman, director at Metals Focus.

"Also, there won't be a substitution from palladium to platinum as it is very difficult to achieve and takes a very long time to make sure it is compliant."

Both metals are primarily used by automakers in catalytic converters, but platinum is more heavily used in diesel vehicles, which have fallen out of favor since Volkswagen's emissions-rigging scandal broke in 2015.

Unlike platinum, palladium has benefited from the switch away from diesel engines and expectations for growth in hybrid electric vehicles, which tend to be partly gasoline-powered. This has helped cushion the metal from the impact of falling car sales across the globe.

"It's very difficult to predict in a market which is very small, but we are nearing the $1,500 level, and reaching it is very likely as tightness in the market along with the dollar weakness is providing some lift," Newman said.

Meanwhile, spot gold rose 0.22 per cent to $1,329.11 per ounce, having earlier hit $1,330.07, its highest since April 25. U.S. gold futures rose 0.79 per cent to $1,332.50.