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Rallying Platinum Grabs Premium Over Gold Price

Steven Puetzer | Photographer's Choice RF | Getty Images

Platinum rose for a seventh consecutive session on Wednesday, driven by strong hedge fund buying after a mine labor crisis at the world's largest platinum producer in South Africa stirred fears of a supply shortage.

The price of platinum also stayed above that of gold for a second straight day when Anglo American Platinum in South Africa said it would shut two mines and cut 14,000 jobs.

The move is expected to widen the platinum market's deficit in 2013 in an already tight market due to strong autocatalyst demand.

Buying by momentum-driven hedge funds and money managers has fueled platinum's 9-percent rally in the past seven sessions, sending the market deeper into an overbought territory. The U.S. EFTS Platinum Trust also posted an increase in its platinum holdings so far in January.

Tim Murray, general manager of precious metals marketing at Johnson Matthey USA, said the funds still see platinum fairly cheap given what's going on in South Africa.

"I will not be surprised to see a sell-off and then a rebound again. It's going to be very volatile,'' Murray said.

Spot platinum rose 0.4 percent to about $1,685 an ounce, hovering near a three-month high of $1,699.50 set on Tuesday.

On technical charts, spot platinum's relative strength index (RSI) shot to 77 from 67 last Friday, above 70 in an area traditionally considered by analysts as overbought.

Dealers and analysts said prices were likely to stay firm, underpinned by labor strikes at three of Amplats' South African mines. The world's top producer on Tuesday announced plans to mothball shafts and cut jobs that would reduce output by around 400,000 ounces annually, or around 1 percent of total supply.

The platinum market largely ignored news that Amplats miners will end an illegal walkout from Wednesday night and want talks to prevent further action.

Spot palladium last rose 2 percent to $723 an ounce.

Short-Term Pressure for Gold

Spot gold was last up 0.2 percent to $1,682 an ounce, overshadowed by rallies in the platinum group metals. U.S. gold futures settled down 70 cents at $1,683.20 an ounce, with trading volume largely in line with its 250-day average.

(Read More: Gold Can Still Break Through $2,000: Analysts)

Gold and platinum hit parity for the first time since March on Tuesday.

Year to date, gold was up 0.3 percent, sharply underperforming platinum, which posted a 10 percent gain.

The yellow metal should find underlying support in coming months from dollar weakness, which should send prices to a record average high, consultancy Thomson Reuters GFMS said.

The gold market was little changed after news Germany's central bank plans to bring home hundreds of tonnes of gold currently held by the U.S. Federal Reserve in New York and the Bank of France in Paris.

Spot silver last rose 0.5 percent to about $31.