Gold rallies, surpasses platinum as dollar drops

Gold rallies, surpasses platinum as dollar drops

* Reuters, Thursday December 11 2008

* Gold trades above platinum for the first time since 1996
* Bullion hits record in sterling terms, says Reuters data
* Platinum, palladium markets eye automaker bailout debate

By Frank Tang and Jan Harvey
NEW YORK/LONDON, Dec 11 (Reuters)

- Gold rose to its highest level in nearly two months on Thursday, surpassing platinum for the first time in 12 years as investors bought it as a safe haven while the dollar tumbled and oil rallied.

Spot gold hit a high of $833.80 an ounce, the highest since Oct 16. It was last at $823.30 at 2:03 p.m. EST (1903 GMT), up 1.7 percent from Wednesday's close.

In New York morning trade, spot platinum traded around $824-825 an ounce, falling below gold, which traded around $828 an ounce.

"It means that platinum is a great buy. Gold is starting to move as a monetary asset," said Frank Holmes, CEO of U.S. Global Investors, which manages $2.3 billion of fund assets.
"As the economy starts to get traction, I think you will see platinum prices take off. As South Africa continues to have problems supplying platinum, I think that platinum is undervalued," Holmes said.

Spot platinum was last at $827.50 an ounce, up 0.7 percent from its previous finish of $822.

"There's going to be people playing this ratio between the two from a trading point of view," precious metals strategist Tom Kendall at Mitsubishi said.

"But in the big scheme of things I don't think there is much overlap between the two in terms of their actual use and physical demand," he said.

The dollar hit a six-week low against the euro, as improving credit conditions eased fears about the global credit crisis and investors sought higher-yielding currencies.

"With all the printing of money taking place in the U.S., the dollar, which has gone parabolic on the upside, is due for a correction, and gold is now responding to that," Holmes said.

INFLATION HEDGE

In sterling terms, gold rose to an all-time high of 559.18 pounds an ounce from 546.51 pounds an ounce late on Wednesday, according to Reuters data. The euro hit a record high against sterling.

Investors also bought gold as a hedge against oil-led inflation as OPEC sought more output cuts. U.S. crude futures ended more than 10 percent higher at $47.98 per barrel.

In the COMEX futures market, traders dismissed talk that gold rallied partly because tight physical supplies may have prompted the cash or near delivery price for bullion to rise above the price for forward delivery -- a situation known in the market as backwardation.

George Gero, vice president of RBC Capital Markets Global Futures, said physical deliveries out of the COMEX warehouses remained normal, indicating that gold's strength was driven by dollar weakness and inflation concerns.

Still, Jon Najarian, co-founder of optionMONSTER.com, said in a commentary that delivery of physical gold in futures could drive the gold market into backwardation, and traders could profit from the resulting spike in gold price.

U.S. gold futures for February delivery settled up $17.80, or 2.2 percent, to $826.60 an ounce on the COMEX division of the New York Mercantile Exchange.

Platinum and palladium traders awaited the outcome of the proposed U.S. automaker bailout. Carmakers account for more than half of annual global consumption of these metals.

Until more definite news on the bailout package emerges, the metals are likely to remain rangebound, analysts said.

Spot palladium was at $178.00, which was up 0.3 percent from Wednesday's late quote of $177.50. Spot silver was at $10.37, which was 1.6 percent higher than its Wednesday close if $10.21.

(With additional reporting by Doris Frankel and Humeyra Pamuk; Editing by David Gregorio)

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