We report our ab-initio calculations of energy states of equilibrium H-H separation in a vacancy of palladium and palladium hydrides at a variety of H/Pd loading ratios. In a vacancy of pure palladium, the H-2 molecule has a shallow local energy minimum only in the [001] direction at a separation of 0.96 angstrom and it dissociates into positions near interstitial sites due to its high energy state. Increasing the H/Pd ratio to the beta phase deepens the energy well of the H-2 molecule and results in a shorter H-H separation. At a loading ratio around 1, the H-2 molecule is mostly affected by surrounding hydrogen neighbors and the H-H separation reaches 0.77 angstrom. The H-2 molecule is then fairly stable and its energy state is comparable to that of nearby interstitial sites. Our calculations suggest that the loading ratio of hydrogen in palladium has a significant effect on the stability of the H-2 molecule in the vacancy. Copyright (c) 2012, Hydrogen Energy Publications, LLC. Published by Elsevier Ltd. All rights reserved.