Palladium prices are bouncing back from a big decline that started in February in what could be a sign of rising investor confidence in the U.S. recovery, thanks to rising auto sales, and concerns over Russian supplies.

From Feb. 28, when palladium sold for $722.20 per ounce, its price fell nearly 12 percent until April 10 when it sold for $636.85. But since then its price has climbed to $658 per ounce, a 3.4 percent recovery.

While palladium is considered one of the four precious metals, with gold, silver and platinum being the other three, it is primarily used as an industrial materal. Over half of the world's output of the metal is used in catalytic converters for gasoline engines. It is also used to make the electrodes in consumer electronics.

A rise in the demand for the metal suggests investors are optimistic more people will be buying cars and electronic goods in the near future. U.S. passenger car sales rose in March to 1.4 million vehicles. China is also expected to soon require all new vehicles have catalytic converters, which reduces toxic car emissions.

BNP Paribas predicts global demand for palladium will rise 4 percent in this year. RBS forecasts a near-record $900 per ounce in the fourth quarter, with prices rising further into 2013, according to the Wall Street Journal. The last time the price broke $900 was in the fourth quarter of 2000. The 20-year peak price was $1,090, hit in the fourth quarter of 2001, according to Thomson Reuters.

Some analysts suggest this is simply a market correction following a decline last month of 7.5 percent, from $706.65 to $653.15. 

Palladium has been somewhat of an outlier in that it has been moving slowly but steadily higher over the past 10 days and was in need of a modest correction, INTL FCStone said in a note, according to Reuters.

But a general consensus that the price of the metal will rise to near-record prices by the end of the year revolves around two things: rising car sales and falling Russian supplies.

Fundamentals this year support palladium and there is the expectation that gains in automotive sales will continue, Nikos Kavalis, metals analyst at RBS, told Dow Jones News earlier this month. One of the supply elements in the palladium market is likely to collapse this year. The Russian stockpile, which fed the market last year, is likely to dwindle.

Russia, while supplied almost 10 percent of the world's supply of the metal last year, and has hinted that it would scale back on its offering this year, by the end of which its palladium stockpile may be exhausted. 

Non-Russian supplies are expected to remain tight.

Stillwater Mining Co. reported that its mined production of palladium and platinum for the first quarter of 2012 totaled 120,800 ounces, HSBC analyst James Steel said last week in a note.

By comparison, total mined production for the first quarter of 2011 was 131,200 ounces. Based on production results for the first quarter of 2012 and projections for the remainder of the year, the company reiterated its full year production guidance for 2012 of approximately 500,000 ounces of mined production. The production data is consistent with out view that PGM supplies will remain tight, although prices have been noticeably weak.