Fund selling is likely to push platinum prices down to around $870 an ounce, a level which may spark fresh buying interest from jewellers and auto makers in key consumers China and Japan, dealers said on Wednesday.
Platinum was trading at around $881 an ounce, having touched a 14-month high at $898 an ounce last week. Platinum, a lustrous white metal, is used in jewellery and auto catalysts to cut vehicle emissions.
Yukuji Sonoda, a precious metals analyst at Daiichi Commodities in Tokyo, said platinum could soon hit previous lows of $870 and $865 because of selling pressure from funds ahead of US Federal Reserve interest rate meetings this week.
"The price tends to be bearish, so Chinese and Japanese users will come back to the market again. This is the best chance for end-users," said Sonoda.
The physical sector had been quiet for some time because of volatile prices and a lack of interest from jewellery and automakers in China and Japan, dealers said.
But a fall to around $870 could prompt buying, which would eventually push prices back up above $880, as fundamentals remain strong. Johnson Matthew, the world's biggest platinum distributor, said this month it expected to benefit from laws that take effect next year requiring trucks and buses to use catalytic converters. Dealers said platinum's recent hike was mainly driven by gold, which hit a 3-month high at $443.60 an ounce last on Friday on fund buying. But, as the Fed meetings loom, the funds liquidated their positions.
Wall Street economists expect the Federal Reserve to raise its key interest rate by a quarter point, bolstering the yield potential for the dollar.
A stronger dollar makes dollar-priced precious metals more expensive for holders of other currencies. On the Tokyo Commodity Exchange (TOCOM), the newly listed June 2006 platinum contract fell 9 yen per gram to 3,030 yen.
"We don't see much fund activity in platinum TOCOM. I think people in Japan are still focusing on gold and the energy market," said one dealer in Tokyo, who expects platinum to trade at $860-$900 an ounce in the next few weeks.