PGMs at more than 17-month highs, gold ticks up

A vendor places a gold statue featuring late Chinese leader Mao Zedong at a gold store in Xiangtan, Hunan Hunan province December 26, 2009.

LONDON (Reuters) - Platinum and palladium prices rallied to their highest in over 17 months on Monday, helped by investment demand after the launch of U.S.-based exchange-traded funds this month.

Analysts expect platinum and palladium, used in catalytic converters, to rise further, after gaining 14 percent and 28 percent respectively since late December, but also warn of a correction on concerns over the still ailing auto sector.

The platinum group metals (PGM) rise and the dollar's dip against a basket of currencies lifted gold, but analysts said fresh impetus was needed to push bullion higher as there was little support from currency markets with the euro under pressure.

Spot platinum rose as high as $1,626.00 per ounce, its highest since August 2008, and was at $1,612 an ounce by 2:52 p.m. EST, up about 1 percent on the day.

Spot palladium rose as high as $459 an ounce, its highest since early July 2008, and stood at $457.50 in late trading, up about 1.1 percent from Friday.

"We saw the opening of the U.S. ETFs this month, that's proved relatively popular so far. We've seen a little bit of switching from gold to PGMs overall, so that's driven the price," said Commerzbank trader Rory McVeigh.

A U.S. subsidiary of London's ETF Securities launched the products last Friday, and uptake has been healthy. About 170,000 ounces of metals were added to the products in the first two trading sessions.

But McVeigh said the lack of a solid recovery in the car industry could mean once the investment demand is saturated, both metals could be heading for a sharp correction.

"When it's investment driven, the exit could be a lot harsher than the rise," he said, but he did not rule out a rise to $1,800 an ounce for platinum in the short term.

FRESH IMPETUS NEEDED

Gold prices were up slightly but rises were limited as the euro remained under pressure due to financial problems in Greece and concerns over the potential impact on the single currency.

Investors have also kept to the sidelines because New York markets were closed on Monday for Martin Luther King Jr. Day.

Spot gold inched up to $1,132.50 per ounce compared with $1,129.90 an ounce late in New York on Friday. U.S. gold futures for February delivery were at $1,134 per ounce, up 0.25 percent.

"Until we get fresh momentum based on an event or data, gold is going to continue to struggle as long as the dollar is being preferred versus the euro," said Tom Kendall, precious metals strategist at Mitsubishi.

Spot gold hit a five-week high of $1,161.50 on January 11. Gold has fallen 2.5 percent since then, as a rise in the greenback hurt investor sentiment.

The high gold price has hurt Italian jewellers, who are now turning to alternative materials such as leather, textiles and ceramics to offset prices, an industry executive at the Vicenza trade fair said.

Holdings by the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, fell 0.914 tonnes to 1,112.836 tonnes on Jan 15.

Silver prices were at $18.61 an ounce versus $18.36 an ounce late in New York on Friday.

(Editing by Sue Thomas and Martin Golan)