(Updates with New York closing prices, quotes, market
activity)
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.
"The fundamentals (of gold) still remain overwhelmingly
bullish. But I think you're seeing some funds taking profits,
knowing that a lot of small speculative orders are coming in to
buy," said Rob Kurzatkowski, futures analyst with optionsXpress
in Chicago.
Spot gold stood at $910.00/910.75 per troy ounce <XAU=> by
New York's last quote at 2:15 p.m. EST (1915 GMT), 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.
The gold contract for April delivery at the COMEX division
of the NYMEX <GCJ8> settled down $14.50, or 1.6 percent, at
$913.50 an ounce, after trading in a $30 range.
But currency fundamentals turned against bullion as the
dollar rose sharply after a report showing the U.S.
manufacturing sector expanded in January helped the greenback
recover news of the first contraction in the U.S. labor market
in 4-1/2 years. A weaker dollar makes gold more expensive for
non-U.S. buyers.
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.
"The fact that it didn't make a run for $900 makes me feel
that this market has another leg," said Frank McGhee, head
precious metals trader with Integrated Brokerage Services in
Chicago.
Silver surged to a 27-year peak while palladium rose to its
highest level in 20 months, tracking strength in gold prices,
analysts said.
PALLADIUM, PLATINUM RISE
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 its previous finish of
$386/389.
Palladium's major end use is in non-diesel vehicle
catalysts, where it helps clean exhaust gases. Russia is by far
the biggest producer of palladium, followed by South Africa.
John Reade, analyst at UBS Investment Bank, told clients in
a note that lower-than-expected shipments from Russia had
encouraged speculators to buy in the palladium market.
Unpredictable supply from Russia had contributed to huge price
swings in palladium in the past.
"But if we get through the first quarter of 2008 without
additional shipments, there is a good chance that Russian stock
sales have slowed, which would be a very positive development
for palladium," UBS said.
Meanwhile, 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 $1,752/1,759 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," Reade said.
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 its Thursday close in New York.
(Additional reporting by Frank Tang in New York, editing by
Matthew Lewis)
