Spot palladium eased 0.2% to $2,965.35 per ounce by 12:32 p.m. EDT (1632 GMT), after hitting an all-time high of $3,017.18.
"There are stricter pollution controls globally that we've not seen in the past, which means vehicles that were not previously required to use auto-catalysts will now have to, and hence more demand," said Bart Melek, head of commodity strategies at TD Securities.
"For the foreseeable future, the market will be in physical deficit and prices will go higher," he added.
Concerns about supply shortages were exacerbated after top producer Nornickel announced disruptions at two mines due to flooding.
Spot gold, meanwhile, fell over 1% after Yellen said U.S. interest rates may need to rise to prevent the economy from overheating as more support programs come on line.
Gold was last down 1% at $1,775.02. U.S. gold futures were down 1% at $1,774.70.
Higher interest rates increase the opportunity cost of holding non-yielding bullion.
"Gold failing for the fourth time in two weeks ahead of $1,800, which has been the top of the range, triggered some profit taking before it dove $20 on Yellen's unexpected comment," said Tai Wong, head of metals derivatives trading at BMO.
"Yellen had a long and consistent history as a dove at the Fed."
Also reducing bullion's allure for other currency holders was a stronger dollar.
"We continue to see prices averaging $1,775/oz in Q2, given the physical market has cushioned the downside, ETP (exchange-traded products) outflows have started to slow and the dovish Fed messaging keeps risks skewed to the upside," said Standard Chartered analyst Suki Cooper.
Silver fell 2% to $26.34 per ounce, after hitting its highest since Feb. 26, while platinum dipped 0.6%, to $1,222.93.
(Reporting by Swati Verma and Eileen Soreng in Bengaluru; Editing by Marguerita Choy and Mark Potter)
By Swati Verma
