Platinum and palladium Thursday hit their lowest levels since February as investors continued exiting positions in all precious metals to avoid risk on concerns European debt issues will hurt economic growth.

One analyst said platinum and palladium fell hardest since the share of investment demand in them became greater than other commodities, making them more vulnerable when investors started bailing out of positions. Gold, meanwhile, was also swept up in the risk aversion, losing its safe-haven allure for the moment.

Around 8:57 a.m. EDT (1257 GMT), July platinum tumbled $89.80, or 5.6%, to $1,515.90 an ounce on the New York Mercantile Exchange. The contract bottomed at $1,490.30, its lowest level since Feb. 12. June palladium plummeted $41.70, or 9.1%, to $418 and hit a $406 low that was its weakest since Feb. 8.

“As risk is being reduced across the board, they’ve proven to be very vulnerable,” said J.P. Morgan analyst Michael Jansen in London. “They are disproportionately more owned by the investment community than other industrial metals.”

Prices ran up sharply early in the year on expectations an improving economy would mean more industrial demand for these metals in auto catalytic converters. They got an extra boost from investment demand following the launch of the first U.S. platinum and palladium exchange-traded funds, ETFS Physical Platinum Shares (PPLT) and ETFS Physical Palladium Shares (PALL). Metal is put into storage to back shares that trade like a stock but track the price of the commodity.

Commodities collectively have suffered as market participants worry sovereign-debt issues in Europe could eventually crimp the economic growth that had been hoped for, which in turn might mean less demand for natural resources ranging from platinum to cocoa.

Meanwhile, gold for June delivery on the Comex division of the New York Mercantile Exchange fell $11.90, or 1%, to $1,181.20 an ounce. Silver for July delivery lost 39.5 cents, or 2.2%, to $17.72.

The general market volatility has institutional investors selling to exit positions in gold to steer clear of risk, Jansen said.

“Gold should be trading higher in this sort of environment,” Jansen said. Safe-haven flows, in fact, sent prices to record highs last week. “But everyone is cutting risk across the board. Volatility has risen, uncertainty is high and positions just look too big, whether you’re in the money or not.”

Still, Jansen said, there is buying from smaller retail-type investors. This is reflected by an increase of holdings by exchange-traded funds, he said. There was an inflow of a little more than three tons into SPDR Gold Shares, the world’s largest gold ETF, on Wednesday.

Much of the selling in gold has been to raise cash to meet margin calls in other markets, said a note from Barclays Capital.

Ira Epstein, director of the Ira Epstein division of The Linn Group in Chicago, said there appears to be a preference to hold dollars and U.S. Treasury securities at the moment rather than gold.

As gold falls, weakness is exacerbated as futures traders are pressured to bail out of positions in which they previously bought, he said. At the session low of $1,175, any trader who might have bought at the benchmark record of $1,247.70 on Friday is already down nearly $75

By Allen Sykora

Tags: economic recovery, economy, european economy, european union, financial, financial markets, Global Economy, investors, recession, us economy, us stocks

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