Palacios is having a good year but an 800 OPS doesn't scream "promote me". That's not as good as what Nick Gordon did in 2018 and he was two years younger then than Palacios is now.
I haven't heard rave reviews about his defense which makes me believe he's behind Royce Lewis, Austin Martin, Jose Miranda and Nick Gordon on the organizational depth chart. He has earned himself another season but I don't see a reason to protect him on the 40 man roster this offseason. Similar players will be available on minor league contracts as free agents.