PRECIOUS-Palladium jumps to 2011 highs after early buying burst

Fri Apr 11, 2014 8:13pm GMT
 

* Global equities slip to two-week lows

* Dollar index steady, on course for weekly fall

* Chinese prices at discount of $1 per ounce; demand weak (Updates prices, adds comment)

By Josephine Mason and Clara Denina

NEW YORK/LONDON, April 11 (Reuters) - Palladium prices shot through $800 an ounce for the first time in almost three years on Friday after a burst of heavy early buying triggered light buy stops as investors bet on tightening supplies from top exporter Russia and strong automotive demand.

Gold held around 2-1/2-week highs on Friday, heading for its biggest weekly gain in a month on sagging risk appetite and increasing hopes the U.S. Federal Reserve will hold off on raising interest rates as soon as early next year.

Standing out in a broadly flat market, palladium, the smallest of the four precious metal contracts, took off midmorning after "light" buy stops were triggered after piercing $800 per ounce for the first time since June 2011, a broker said.

The move was not mirrored anywhere else in the precious complex or financial market and what kicked off the sudden flurry of buying was not immediately clear.

But it was conspicuous for its volume and size: Some almost 2,000 lots of futures changed hands in the 10 minutes before 10:00 a.m., a third of the average daily volume of the past few months, driving $15 gains, more than half the day's trading range.

Some said the hefty buying reflected fresh interest from institutional investors, who are switching out of bullion and betting on tightening supplies from top exporter Russia as tensions with Ukraine intensify and strong inflows into new palladium-backed exchange-traded funds in Johannesburg.

Industrial demand from the automotive industry is also healthy. Its sister metal platinum has also benefited from strikes in South Africa, the world's No. 1 producer.

"Palladium continues to be the star of the precious market. The ongoing uptrend remains intact," said David Meger, director of metals trading at Chicago futures brokerage Vision Financial.

Spot prices rose 2.4 percent to their highest since August 2011 at $810.00 an ounce. The most-active June futures settled at $806.8 an ounce, up 1.8 percent from Thursday.

The rally put the market on track for its third straight month of gains, with 15 percent gains in the spot price since the start of the year.

Elsewhere in precious, spot gold was almost unchanged at $1,317.76 an ounce at 3:59 p.m. EDT (1959 GMT), up 1.2 percent for the week and notching up a second straight week of gains.

A day earlier, bullion hit its highest since March 24 at $1,324.40 an ounce as the Fed's March meeting minutes showed officials were not keen on increasing interest rates straight after unwinding bond purchases, as the markets had feared.

Gold futures for June delivery settled down 0.1 percent at $1,319 an ounce.

"Gold is supported by the Fed minutes and lower U.S. Treasury yields, which have dropped over the past few days," Natixis analyst Bernard Dahdah said.

"But looking forward, our view is for lower prices because the U.S. economic indicators are starting to improve compared to the start of the year."

Global shares dropped sharply, while the dollar edged up 0.1 percent versus a basket of currencies but was still down around 1 percent for the week.

Data on Friday showed U.S. producer prices recorded their largest increase in nine months in March, offsetting any safe-haven interest due to mounting geopolitical tensions between Russia and Ukraine.

Data showed hedge funds and money managers reduced their bullish bets in gold and silver futures and options in the week to April 8.

PHYSICAL DEMAND

Gold's gains were also capped by continuing outflows from gold funds and weak physical demand in Asia.

The fund still hasn't seen any inflows since March 24, implying underlying bearishness.

Buying in Asia has been quiet for over a month now, with top purchaser China on the sidelines due to a drop in the yuan.

Prices briefly turned to a premium this week but fell back down to a discount of about $1 on Friday.

Gold and silver imports into India, the world's second-biggest buyer of it, dropped 40 percent to $33.46 billion in 2013/14.

Silver fell 0.2 percent to $19.96 an ounce while platinum was up 0.09 percent at $1,450.75 an ounce. (Additional reporting by A. Ananthalakshmi in Singapore; Editing by Jason Neely, Jane Baird and Jonathan Oatis)

Market Update

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