Platinum traded near record highs on Wednesday, with consumers and speculators buying on concerns over a likely market deficit next year and falling inventories. Platinum's strength lent support to gold as it hovered above $800 an ounce after a rally to its highest in 28 years at $845.40 in early November.
Analysts said positive fundamentals, high borrowing rates and tight market conditions had resulted in a strong rally in platinum, that has seen prices surging 36 percent this year. Platinum rose as high as $1,516 an ounce before falling to $1,512/1,516 1530 GMT, against $1,507/1,511 in New York on Tuesday, when it rallied to a record high of $1,519.
"The recent move higher in platinum prices appears justified by fundamental market developments and we see further tightening in 2008," said Suki Cooper, metals analyst at Barclays Capital. Supply disruptions at some mines in South Africa, the world's largest producer, had resulted in a large deficit this year and the market might see a deficit of more than 77,000 ounces in 2008, she said.
Johnson Matthey, 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. "In fundamental terms, the outlook for platinum is still highly encouraging, as numerous breaks in production in South Africa and strong investment demand will mean the year ending with a deficit rather than the surplus first expected," Commerzbank analyst Eugen Weinberg said in a daily report.
Analysts said platinum inventories had fallen to a low level of just six to seven weeks of global consumption. Platinum lease rates also climbed up due to tightness in the spot market and sent metal futures into backwardation. Backwardation is a market condition in which prices for nearby months are higher than for later months.
Dealers said the short-term lease rate was quoted at about 9 percent at present, up from just 3.0 to 3.5 percent a month ago. Some analysts said the metal was becoming increasing vulnerable to corrections. Thin market conditions ahead of Christmas and year-end holidays might also exaggerate moves.
"Although it is possible for funds to squeeze lease rates and spot prices higher still, it will become increasingly expensive and risky. When the expected correction comes it may be severe," said Tom Kendall, strategist at Mitsubishi Corp.
Aquarius Platinum said it lost an attributable 250 ounces of platinum group metals a day due to a strike at its Marikana mine in South Africa. Gold steadied and hovered above the key $800-an-ounce level, with dealers trading cautiously ahead of Christmas and year-end holidays when the market generally becomes thin. Spot gold was last quoted at $802.75/803.45 an ounce, against $802.90/803.60 in New York on Tuesday. US gold futures were flat at $807.40 an ounce.
"We see gold as stuck in a tight range for the moment with a tug of war going on," Investec Australia said in a report. "On one side, we see selling pressure arising from the need to cover margin calls on short equity positions, whilst on the other the instability in markets will push investors towards it for its safe haven status."
In market news, the Swiss National Bank's gold holdings fell by 364,000 ounces (11.3 tonnes) to 37.134 million ounces in November, from 37.498 million in October. In other precious metals, palladium fell $3 to $352/355 an ounce, while silver rose to $14.12/14.17 an ounce from $13.98/14.03 in the US market.
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