(Recasts, adds quotes, updates prices)
By Atul Prakash and Veronica Brown
LONDON, Feb 1 (Reuters) - Gold fell sharply from record
highs on Friday with the metal's rally running out of steam in
heavy selling as the dollar rebounded versus the euro.
Dealers said selling in the afternoon accelerated sharply as
stop-loss orders kicked in during the London afternoon fix,
taking the metal to an intraday low of $905.40 -- down roughly 2
percent on the day.
By contrast, Platinum Group Metals (PGMs) maintained gains,
with platinum at a record high on concern over supply from key
producer South Africa and palladium at a six-year peak.
"Gold was always struggling. It was being led by the other
metals to a degree and was due for some profit taking. With the
dollar recovering this afternoon it was time to clear the decks
a bit," said Simon Weeks, director of precious metals sales at
Bank of Nova Scotia.
By 1641 GMT, spot gold stood at $906.20/907.10 per troy
ounce <XAU=> compared with $923.80/924.70 quoted in New York
late on Thursday.
The price earlier hit a record high at $936.50 in the run-up
to weaker than expected U.S. jobs data, having surged more than
30 percent in 2007.
But currency fundamentals turned against bullion as the
dollar rose sharply, after U.S. manufacturing activity data came
in far higher than expected. A weaker dollar makes gold more
expensive for non-U.S. buyers.
Dealers said further selling could not be ruled out on gold,
with $890 seen as the next major support level.
Some said the losses would be limited as the fundamental
arguments in favour of gold remained intact, including prospects
for further U.S. rate cuts and dollar weakness due to fears of a
recession in the world's largest economy.
Silver surged to a 27-year peak while palladium rose to its
highest level in 20 months, tracking strength in gold prices,
analysts said.
Some analysts say the U.S. economy is already contracting,
and the massive reduction in interest rates over the last four
months of more than two percentage points shows the Federal
Reserve is worried too.
SUPPLY BOOSTS PLATINUM
Platinum <XPT=> set a record high of $1,755 an ounce as
supply problems in top producer South Africa boosted sentiment.
Palladium <XPD=> followed in platinum's wake, jumping to a
six-year high at 410/413 an ounce from $386/389.
"Power supply concerns continue to buoy prices and is likely
to remain a pivotal driver for prices in the medium term," said
Suki Cooper, metals analyst at Barclays Capital.
Fresh electricity supply problems in South Africa hit hopes
in the mining sector on Thursday for an early return to full
production after a five day hiatus. []
State utility Eskom [] had agreed to ramp up supply
to the country's diamond, platinum, gold, coal and other mines
to 90 percent by Thursday, after a power shortage halted their
operations for the five days to Wednesday. []
Platinum <XPT=> was last quoted at $1,755/1,759 an ounce
from $1,730/1,735 late in New York on Thursday. The metal surged
37 percent in 2007.
"We expect acute South African power problems to cost the
platinum industry about 200,000 ounces of platinum production in
the first quarter of 2008," John Reade, analyst at UBS
Investment Bank, said in a note.
UBS lifted its platinum price forecast to $1,800 an ounce in
2008, $2,100 the next year and $2,300 in 2010 from previous
predictions of $1,520, $1,450 and $1,375 respectively.
Spot silver <XAG=> hit a 27-year high at $17.27 an ounce but
later fell in tandem with gold to $16.76/16.81, versus
$16.91/16.96 in New York.
(Editing by Chris Johnson)
