Platinum prices hit their highest since early July on Monday after an outbreak of violence at a mine in major producer South Africa sparked a 5 percent rally last week, fuelling the metal's biggest week-on-week rise since February.

Forty-four people were killed in clashes between police and rival unions at number three platinum miner Lonmin's Marikana mine in South Africa.

Tensions flared after police shot 34 dead on Thursday after moving in with automatic weapons against workers armed with spears, machetes and handguns.

Spot platinum peaked at $1,477.50 an ounce, its highest since July 5, on Monday, but retreated from highs after workers started trickling back to work at Lonmin. The metal was up 0.2 percent at $1,467.99 an ounce at 14:03 SA time.

A quarter of the workforce returned to the Marikana platinum mine early on Monday, where clashes last week evoked memories of apartheid-era violence.

South Africa produces 75 percent of world supply of platinum, so any threat to output can have a significant impact on prices. Lonmin alone mines around 60,000 ounces of the white metal a month.

“With such a large percentage of production coming from one - unstable it seems - country, we could begin to see some kind of political risk premium being priced in,” Ole Hansen, Saxo Bank's head of commodity strategy, said.

“The big issue in terms of supply threat is obviously if it spreads, but I think for now it may have further to go both outright but also relative to gold, as such a move will attract momentum traders back in.”

While dealers say availability of platinum remains plentiful after a recent dearth of demand from European carmakers, the main consumers of the white metal, speculation that the action could start to affect other mines is causing a price reaction.

“Depending on how long hostilities at Lonmin last and if the unrest spreads to other miners on the Western Limb, the (platinum market) surplus of circa 150,000 ounces could easily be wiped out,” Deutsche Bank said in a note.

“The current adverse economic conditions for platinum producers in addition to the increased interruptions from violent strikes and protests are resulting in increased production risks for platinum in South Africa,” it said.

Platinum's climb in early trade also benefited sister metal palladium, which rose to an eight-week high at $608.50 an ounce. It was later down 0.7 percent at $598.


Platinum's rise narrowed its discount to gold to less than $150 an ounce from above $230 an ounce a week ago. The gold/platinum ratio, which measures the number of platinum ounces needed to buy an ounce of gold, dropped to 1.1 on Monday from a peak of 1.17 last week, its highest since 1985.

Gold prices also edged higher on Monday as the dollar wilted, easing 0.1 percent against a basket of six other currencies. They remained in a narrow range, however, as buyers awaited clearer direction on central bank policy.

Speculation that both the Federal Reserve and the European Central Bank could launch more gold-friendly monetary easing to stimulate growth has supported bullion prices in recent months.

The financial markets will be closely watching the minutes of the latest Federal Open Market Committee meeting on Wednesday for signs on the outlook for monetary policy.

“The FOMC minutes... could offer further insights as to where the balance of opinion lies, especially after several hawkish comments from non-voting members last week,” UBS said in a note.

Buying by central banks, a major support to bullion prices this year, was evident against last month, after Russia's central bank said on Monday that it added another 18.7 tonnes of gold to its reserves in July.

Spot gold was little changed at $1,614.50 an ounce against $1,615.59 late on Friday, while US gold futures for December delivery were down $2.70 an ounce at $1,616.80. Silver was up 0.3 percent at $28.07 an ounce. - Reuters