* Platinum ETF launch effect offset by stronger dollar
* SPDR Gold holdings inch down 0.08 pct
* CDS risk for euro, commodities highlighted
(recasts, changes dateline, byline, previous TOKYO)
By Veronica Brown
LONDON, Jan 20 (Reuters) - Platinum prices relinquished an
earlier spike to 17 month highs on Wednesday at $1,654 per
ounce, with positive sentiment from the recent launch of new
exchange-traded funds overrun by a resurgent dollar.
Gold prices also gave way to unfavourable currency
fundamentals, dropping some 0.8 percent to fall below $1,130.
The U.S. currency hit five month highs against the euro
<EUR=> with the single currency's decisive break below a key
technical support level prompting widespread selling.
Spot platinum <XPT=> rose as high as $1,654, a level last
seen in August 2008, but the dollar's strength pulled prices
back to $1,627 by 1047 GMT, down from $1,643.00 quoted late in
New York on Tuesday.
A U.S. subsidiary of London's ETF Securities launched
platinum and palladium exchange-traded funds earlier this month,
and both metals had climbed since then.
The metal, which like palladium is also valued for its
industrial use in autocatalysts, is expected by some market
participants to head higher.
"PGMs have done very well since the new ETFs came to town
and people are also expecting great things from automotive
recovery," said Simon Weeks, director, precious metal sales at
Bank of Nova Scotia in London.
Bank of America Merrill Lynch on Tuesday raised its 2010
platinum forecast to $1,750 an ounce from $1,440 an ounce, on
the launch of the new funds and an improving auto sector.
[]
But Bank of Nova Scotia's Weeks was not as bullish as most.
"I think the economic recovery is not as strong as people
want to believe," he added.
Platinum's sister metal palladium <XPD=> retreated to $458,
from $464.50 late in New York on Tuesday.
HEADWINDS
Gold prices reflected currency market sentiment, with dollar
strength sapping the metal's appeal to non-U.S. investors.
Spot gold <XAU=> stood at $1,128.65 per ounce, down 0.8
percent from $1,137.95 quoted late in New York on Tuesday. U.S.
gold futures for February delivery <GCG0> were at $1,129.30,
down 0.9 percent from the settlement in New York.
Spot silver followed gold's lead, falling 1.2 percent to
$18.48 per ounce <XAG=>.
External headwinds were gathering, with Chinese banking
authorities instructing some major banks to stop new lending for
the rest of January after loan growth surged in the first few
weeks of the year. []
With analysts expecting further tightening moves from China,
the gold market was seeing an indirect impact, as any signal of
higher real interest rates impacts the non-interest bearing
precious metal.
Barclays Capital said in a note to clients that investors
were beginning to reassess the bullish enthusiasm that had
characterised the New Year, with risks lurking for commodity
markets.
It noted recent price action in the credit default swap
(CDS) market that suggested investors are growing more cautious
on Europe as a whole and not just on Greece's debt problems.
"While the immediate implications are for further euro
weakness (and dollar strength), continued widening in core
European CDS spreads is likely to have bearish reverberations
across financial and commodity markets." Barclays said.
On the investment front, the world's largest gold-backed
exchange-traded fund, SPDR Gold Trust <GLD>, said its holdings
stood at 1,111.922 tonnes as of Jan. 19, down 0.08 percent from
the previous business day. []
(Additional reporting by Miho Yoshikawa in Tokyo)
(Reporting by Veronica Brown; Editing by Keiron Henderson)
