(recasts, adds quotes, changes prices, pvs SINGAPORE)
By Atul Prakash
LONDON, Jan 28 (Reuters) - Gold drifted higher on Monday to
trade near record highs ahead of a U.S. Federal Reserve meeting,
with a weaker dollar and production halts in South Africa seen
supporting precious metals prices.
Markets are betting that the Fed will cut interest rates by
as much as 50 basis points after the two-day policy meeting
ending on Wednesday, following last week's hefty 75-basis-point
cut in a rare move between scheduled meetings.
"The trend is still higher for the gold price as the dollar
hasn't been very strong recently and lower interest rates in the
U.S. are generally supportive of gold," said Michael Widmer,
metals analyst at Lehman Brothers.
"In the first quarter, you will expect prices to be
relatively well supported."
Spot gold <XAU=> rose as high as $921.50 and was quoted at
$918.15/918.85 an ounce by 1120 GMT, against $913/914 late in
New York on Friday, when it rallied to a record high of $923.40.
U.S. gold futures also sustained gains, with the most active
February contract <GCG8> rising $8.2 an ounce to $918.90. It
rallied to a record high of $924.30 an ounce on Friday.
Bullion investors also awaited a batch of data this week for
clues on the U.S. economy's health, including new home sales
figures later in the day and the monthly jobs report on Friday.
"Gold looks set to benefit from further demand as investors
seek to diversify their portfolios, factoring in some safe-haven
type assets," said James Moore, analyst at TheBullionDesk.com.
"Gold should now look to challenge the $940 area."
PRODUCTION PROBLEMS SUPPORT
Analysts said production problems in South Africa, which
accounts for about 10 percent of global gold output and 80
percent of platinum production, might support the white metal
more than the yellow metal.
South African mining companies hope to resume production
later this week after being allowed to carry out underground
maintenance work in mines across the country that have been
crippled by a power crisis. []
The world's biggest platinum producer, Anglo Platinum, and
top gold miners Anglogold Ashanti, Gold Fields and Harmony all
stopped mining after they were told by the state-owned power
utility it could not guarantee supplies to their operations.
"The South African news is helpful to gold's rally, but with
ample above-ground gold stocks, the world does not need South
African gold production. But it does need South African platinum
production," said John Reade, analyst at UBS Investment Bank.
"We are now concerned that the shortfall in production will
need to trigger a structural change in the platinum market," he
said in a daily report, saying that the metal might rise to
$1,800 in one month from now.
Platinum <XPT=>, mainly used to make jewellery and to clean
vehicle exhaust fumes, hit a high of $1,687 an ounce before
slipping to $1,662/1,667, down from $1,671.50/1,676.50 in New
York. It hit an alltime high of $1,697 on Friday.
"There is a chance that the emergency situation in South
Africa can be resolved in the short term, but the general issue
of not having enough energy available is a problem and there is
no quick-fix." Widmer said.
"The platinum market is not very well supplied for the past
decade, so another year of shortfalls can make a big
difference," he said.
Silver <XAG=> edged down to $16.40/16.45 an ounce from
$16.43/16.48 on Friday when it hit a 27-year high of $16.61.
Palladium <XPD=> fell to $376/380 an ounce from
$378.50/383.50.
(Reporting by Atul Prakash; editing by Peter Blackburn)
