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Update on Surging Gold & Platinum Prices.
Gold rose above $500 and platinum above $1,000 an ounce on Tuesday when investment funds diversified their portfolios on worries about inflation and geopolitics.
Prices then dipped after breaking through the psychological barriers to touch multi-decade highs.
The metals were vulnerable to further downward correction as huge speculative positions could spark profit-booking, but growing demand, supply constraints and plans by some central banks to buy more gold were expected to support, dealers said.
Gold topped $500 an ounce in Asia for the first time in 18 years, while platinum breached $1,000 an ounce, hitting its highest since 1980, as it tracked gold's gains.
"The investors want to buy and they continue to buy. I see no reason for them to stop. So any pull back will be a buying opportunity," said Peter Hillyard, head of metals sales, at ANZ Investment Bank.
"The investors are diversifying portfolios. There is a feeling that currencies and equities are not necessarily reliable and they are adding to commodities because they see the returns are greater there."
Spot gold retreated to $496.80/497.60 an ounce from as high as $502.30 an ounce in Asia. It closed in New York on Monday at $498.20/499.00.
"People are looking for an alternative investment to U.S. dollar-based instruments. The expectations of inflation in the coming year are very high," said Albert Cheng, Far East managing director for the industry-backed World Gold Council.
But jewelery manufacturers and buyers may need time to adjust to the high prices, Cheng said, as bullion has risen more than 14 percent in value so far this year.
The council said this month that global demand for gold in the third quarter totalled 838 tons, a rise of 7 percent from the same quarter a year earlier, as surging investment demand helped offset a slowdown from the jewelery sector.
Some analysts said gold prices could fall to as low as $475 an ounce on liquidation by investment funds to book profits.
The latest weekly Commitments of Traders report issued by the Commodity Futures Trading Commission on Monday showed a further rise in the speculative net long position in New York's COMEX gold.
But the rally was also helped by reports that Russia, Argentina and South Africa had decided to increase the amount of gold in their reserves, reversing a six-year trend of central bank sales, mainly from Europe.
Platinum stood at $990/995 an ounce after spiking earlier to $1,002. It closed in New York at $989/993.
This year, not enough platinum is being mined and recycled to meet demand for catalytic converters and jewelery, so fundamentals have factored into the buoyant market.
Refining and chemical company Johnson Matthey, which provides fundamental analysis of platinum group metals, said in a recent report that 6.71 million ounces of platinum would be used in 2005, exceeding supply of 6.59 million ounces as demand rises from the auto sector and other industries.
It predicted that output from South Africa, the world's top producer, would be lower than planned and the shortfall would continue to support prices.
Silver inched down to $8.27/8.30 an ounce from $8.35 on Tuesday. A breach of $8.43 would make the price highest in 18 years. Silver finished in New York at $8.35/8.37.
Palladium fell to $260/264 from $261/264.
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