March 4, 2005
Borsa Italiana
LONDON,(Reuters) - Palladium jumped to a three-month peak in Europe on Friday as speculators poured cash into the illiquid market, while gold sat quietly ahead of U.S. payrolls data due later in the day.
Analysts questioned palladium's performance given its weak fundamentals, but some traders thought prices might rise further.
By 1113 GMT spot palladium <XPD=> was just off its $203 peak at $202.00/206.00 an ounce, up from New York's previous $196.00/201.00.
Palladium and platinum are used to clean car exhaust fumes, but until recently palladium could not be used in diesel-powered vehicles.
Given the huge price difference between the two -- platinum is currently around four times more expensive -- car manufacturers have been looking to switch to palladium where possible.
In the jewellery sector, where the use of platinum is much more prevalent, the price advantage has encouraged some Asian manufacturers to try palladium.
"The price differential...is sufficient to be encouraging substitution in the auto, and possibly jewellery sectors, although this has been the case for some time and shows no sign yet of restoring the (palladium) market to balance," Alan Williamson, analyst with HSBC said in a report.
Traders and analysts said the price jump -- palladium is up 14 percent this week -- had been exaggerated by illiquid trade conditions.
"A fair bit of money thrown at a small market over a short period of time can have quite an effect. On a percentage basis, these are fantastic moves for the funds," one trader said.
GOLD EYES DATA
Gold drifted slightly lower within familiar ranges as traders waited for the release of February U.S. payrolls data at 1330 GMT before they adjusted their positions.
Market consensus would seem to be leaning towards a surprise to the upside, traders said. Wall Street economists had forecast an increase in jobs of around 220,000, versus 146,000 created the previous month.
"The (financial) market is short of euro and short of gold, so if you do get a highish number, say 250,000, you'll see a bit of a dip in both of those," the trader said.
"But if you do get a low number, it could be the catalyst for a very vicious move as everyone's expecting it to go the other way."
If that were the case, he said, gold might target the year's peak of $437.55 scored earlier this week.
Silver <XAG=> slipped to $7.16/7.19 an ounce from $7.18/7.21, while platinum <XPG=> was barely changed at $863.00/867.00 from $864.00/868.00.
((Reporting by Clare Black; editing by Bernard Halloran; clare.black@reuters.com; RM: clare.black.reuters.com@reuters.net; +44 (0)20 7542 4985))
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