Palladium was 0.9% higher at $2,977.38 per ounce by 12:52 p.m. EDT (1652 GMT), having hit $3,007.73 earlier in the session.
Prices have shot up more than 20% since March 16 when Russia's Nornickel, the top producer, announced that flooding at two of its mines would reduce output.
"You have auto industry buying more palladium, the electronics industry buying more palladium and hence a tight market," said Jeffrey Christian, managing partner of CPM Group.
"It's primarily a speculative surge in demand, and that can go on for a long period of time and keep prices elevated," he added. Demand from the auto industry could climb further as a semiconductor chip shortage that has curtailed production eases later this year.
Commerzbank analyst Carsten Fritsch said prices were unlikely to remain above $3,000 and would begin to fall as automakers switch from palladium to cheaper platinum.
"At this (price) level, more and more car manufacturers will think about substitution," he said.
Tightening environmental rules have forced automakers to use more and more palladium in gasoline engines in recent years, but substitution and a shift to electric vehicles may eventually erode demand.
Meanwhile, spot gold dipped 0.3% to $1,766.62 per ounce as the dollar firmed, making bullion more expensive for buyers holding other currencies.
U.S. gold futures fell 0.2% to $1,765.40.
"Right now there is an increase in investor and consumer confidence in the state of the world and in the state of the U.S. economy, and therefore the state of the dollar," CPM Group's Christian said.
Gold has risen more than 3% this month, its first monthly gain this year.
Silver fell 0.8% to $25.87 per ounce, but is up 6% in April - its biggest monthly gain since December.
Platinum was 0.6% higher at $1,204.54 per ounce.
(Reporting by Eileen Soreng, Nallur Sethuraman in Bengaluru, Peter Hobson in London; Additional reporting by Arpan Varghese; Editing by Paul Simao, Kirsten Donovan)
By Eileen Soreng
