December 22, 2017 / 3:04 PM / in 10 months

PRECIOUS-Strong demand powers palladium to 17-year pinnacle, gold firms

    * Gold at 2-1/2-week high, climbs for 6th straight session
    * Palladium on track for strongest annual performance since
2010
    * Palladium substitution unlikely to be imminent

 (Rewrites throughout with updated prices, comment; adds second
byline, NEW YORK dateline)
    By Marcy Nicholson and Pratima Desai
    NEW YORK/LONDON, Dec 22 (Reuters) - Palladium prices jumped
to 17-year highs on Friday as strong demand from autocatalyst
makers reinforced the prospect of market shortages, while gold
rose for the sixth straight session to reach a 2-1/2-week high
on weak U.S. economic data.
    Spot palladium        turned down 0.06 percent to $1,037.15
per ounce by 1:50 p.m. EST (1850 GMT), after rising to
$1,042.50, its highest since February 2001, though slowing car
sales are expected to challenge further gains. It was on track
to close 2017 up more than 50 percent, its strongest annual
performance since 2010.
    Analysts think about 80 percent of global palladium demand
will come from autocatalysts for gasoline powered cars, which
many now prefer over diesel fueled vehicles. 
    "Diesel's share of the European auto market is falling and
the flip side of that is gasoline's share is rising," said
Julius Baer analyst Carsten Menke.
    "Chinese car sales supported palladium, but there will a
reality check as tax incentives are removed. In Europe and the
United States car sales look to be peaking."             
    GFMS analysts said in a recent research note that next year
is set to be the seventh successive year of large deficits in
the palladium market.  
    Shortages have in recent years been partly offset by
investors selling their holdings in physically backed
exchange-traded funds                . 
    Spot gold        was up 0.55 percent at $1,273.61 an ounce,
after rising to $1.275.98, the highest since Dec. 5. Bullion was
on track to see its strongest weekly performance since
mid-October. 
    U.S. gold futures         settled up 0.7 percent at
$1,278.80. The futures market will be closed for the Christmas
holiday on Monday.             
    U.S. growth prospects dimmed on Friday as data showed
spending outpaced income in November and the Federal Reserve's
preferred inflation measure -- the personal consumption
expenditures price index that excludes food and energy -- rose
by just 0.1 percent in November.             
    "At the end of the day, if you don't have the incomes you're
really not going to continue to aggressively go spending," said
Bart Melek, head of commodity strategy at TD Securities in
Toronto.
    "In that environment, it's very unlikely ... that the Fed is
going to get overly aggressive anytime soon when the inflation
metric is well below target." 
    Platinum       , used in autocatalysts for diesel cars, fell
0.4 percent to $911.50 an ounce. The ratio of platinum to
palladium prices has gone below 1 from above 5, leading to talk
of platinum substituting palladium.
    Silver        added 1.5 percent to $16.35 an ounce. 

 (Editing by Hugh Lawson and Tom Brown)
  
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