Sheets of palladium are pictured at a jewellery factory. File picture: Yuriko Nakao

Singapore - Palladium held near its highest level in more than three years in a volatile session on Wednesday, underpinned by physical demand for the precious metal, as well as a five-month strike in South Africa.

Palladium often tracks sister metal platinum, which has risen nearly 8 percent this year on supply concerns after the strike over wages took out 40 percent of global platinum output and hit South Africa's economy.

Palladium slipped to $848.10 an ounce before bouncing to $852.00 by 08:52 SA time, unchanged from the previous session, and not far from a 3-1/2-year high of $854 hit on Tuesday.

South Africa is the world's second-biggest producer of the malleable metal which has gained more than 19 percent this year.

“Palladium demand from industrial customers is not bad despite the high price level. People are buying palladium and we are seeing purchases from the auto, dental and chemical sectors,” said a physical dealer in Tokyo, who also trades in gold and platinum.

“But demand for platinum for investment and the industrial sector is not good at all.”

Palladium and platinum are both used in making jewellery and auto catalysts.

With net long positions in the palladium market at historical highs, a steep pullback is expected in the coming weeks as profits are taken above $860 an ounce, according to ANZ.

South Africa's Impala Platinum, the world's No.2 producer of the precious metal, said it had nothing more to offer to resolve a five-month strike over pay that has cut output and slowed the economy.

The strike has cost Implats and other producers Anglo American Platinum (Amplats) and Lonmin collectively about $2 billion in lost revenue.

Gold, which has been overshadowed by palladium and recent rallies in equities, added $1.01 to $1,261.50 an ounce, off a four-month low of $1,240.61 hit last week.

“Around these levels, we can say demand seems to be slowing down a little bit. On the investment side, I don't think people are aggressive,” said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.

“Sentiment is slightly bearish. We've got to see whether the downside at $1,200 is a good point to buy. On the upside, $1,275 to $1,280 is not easy to break through,” Leung said.

The euro came under mounting pressure on Wednesday as the European Central Bank's liquidity package encouraged flows out of the zone, while Asian shares consolidated near recent highs following a flat finish on Wall Street.

US COMEX gold futures for August delivery was at $1,261.50 an ounce, up $1.40.

Russian gold output rose by 29.7 percent in the first four months of 2014 compared with the same period in 2013 due to producers fighting lower prices with higher volumes, an industry lobby said on Tuesday. - Reuters