LONDON (Reuters) - Platinum set a record high on Tuesday as strong industrial demand and market tightness prompted speculators and consumers to buy the metal.
Gold advanced more than 1 percent to trade above $800 an ounce, and remained vulnerable to wide fluctuations because of thin markets ahead of Christmas and year-end holidays.
Shortage of platinum in the spot market also lifted short-term borrowing rates of the metal to around 7 percent from about 2.5 to 3.0 percent one month earlier, analysts said.
“This is investor-driven, but supported by a strong fundamental story,” said David Holmes, director of metals sales at Dresdner Kleinwort Investment Bank.
“The tightness in the market, the expectation that there could be supply issues in 2008 and robust demand have been helping the metal,” he said.
Spot platinum jumped 1.7 percent to its lifetime high of $1,519 an ounce before easing to $1,510/1,515 by 11:03 a.m. ET, against $1,494/1,498 in New York late on Monday.
Supply disruptions following deadly mining accidents in South Africa, the world’s main platinum producer, and growing investor demand for the metal, mainly used in jewellery and to clean car exhaust fumes, have supported prices this year.
Johnson Matthey JMAT.L, the world's top platinum refiner and fabricator, said in November the market would change course in 2007 and see a deficit of 265,000 ounces. It had a surplus of 65,000 ounces in 2006 after seven successive years of deficits.
“We believe that high platinum prices are justified by a good fundamental footing characterized by a physical deficit, supply disruptions and declining inventories,” Barclays Capital said in a daily report.
In New York, January platinum futures hit a contract peak of $1,526.40 an ounce.
“There is very good fund buying and the (platinum) market has gone into a very steep backwardation,” said one precious metals dealer in New York.
Backwardation is a situation where the cash of nearby delivery price rises above the price for forward delivery, signaling supply tightness in the near run.
PRICE AND TIMING
“Investor interest has also been strong, as evident from the healthy inflows to platinum ETFs in recent months,” Barclays said, referring to exchange-traded funds.
Platinum PHPT.L held by London-based ETF Securities has surged to 105,000 ounces from around 35,700 ounces in early November, industry sources said.
“We continue to view platinum as a metal that investors should own. The only issue is price and timing. We do not think that $1,500/oz is a level that investors should be jumping into new longs in platinum,” said John Reade, head of metals strategy at UBS Investment Bank.
Traders said nervousness about whether Russia, a leading producer, would issue export licenses on time for 2008 was also affecting the market.
Spot gold gained in European trade and rose as high as $806.20. It was last quoted at $800.80/801.50 an ounce, up from $794.60/795.30 late in New York on Monday. It hit a 28-year high of $845.40 on November 7.
“We are remarkably resilient and pivoting around $800. The market keeps on taking advantage of dips as an opportunity to buy,” said Holmes of Dresdner.
In other bullion markets, U.S. gold futures also gained. The most active February contract was trading up $6.2 an ounce at $805.30 from the New York settlement. The benchmark October 2008 contract in Tokyo ended 4 yen per gram lower at 2,901 yen.
Palladium was up $1 at $355/360 per ounce from the New York close on Monday, while silver rose to $13.90/13.95 an ounce from $13.87/13.92.
(Additional reporting by Lewa Pardomuan in Singapore and Frank Tang in New York)
Editing by Peter Blackburn
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