Palladium extends rally to near three-year high on supply fears

By A. Ananthalakshmi

SINGAPORE (Reuters) - Palladium gained for a fifth straight session on Monday to its highest since August 2011 on growing fears that supply would be hurt by more U.S. sanctions on top producer Russia and prolonged labour strikes in No. 2 producer South Africa.

Gold jumped to a three-week high as mounting geopolitical tensions in Ukraine curbed investor appetite for risk, sending equities lower and boosting bullion's safe-haven appeal.

Relations between Russia and the West are at their worst since the Cold War, as Moscow annexed Crimea from Ukraine, saying the Russian population there was under threat. Some Western governments believe the Kremlin is preparing to take control of eastern Ukraine as well.

The United States is prepared to step up sanctions against Moscow if pro-Russian military actions in eastern Ukraine continue, a senior U.S. envoy said, with the sanctions set to target mining, banking and energy, among other sectors.

Palladium has outperformed other precious metals this year, gaining about 14 percent supported by fears of supply, and growing demand in the auto sector.

"The combination of the ongoing mining strikes in South Africa and the tension buildup between Russia and the West over Ukraine puts nearly three quarters of palladium supply at risk of some form of disruption," HSBC analysts said in a note.

"On the demand side, continued strength in the U.S. and China auto market is a supportive case for palladium as it is an important component used in the fabrication of autocatalysts."

Palladium rose as much as 1.7 percent $814.20 an ounce on Monday - its highest since Aug. 3, 2011, before settling to trade up 1.3 percent at $810.50 by 0640 GMT.

Spot gold rose to a three-week high of $1,329.70 as Asian equities continued to lose more ground.

Platinum gained about 1 percent to its highest in nearly a month as labour strikes continued in South Africa.

GOLD TO GAIN MORE

Analysts said gold could see more gains in the near term as tensions over Ukraine remained high and technicals were supportive.

"There are still leftover signs of bullishness as the price momentum is highly positive and prices did not retrace gains immediately after the impulsive $10 rise at (Monday) open," Phillip Futures said in a note. It said the upside was likely capped at $1,335.

Outflows continued from SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, in a sign that the price rally is not likely to last for long.

Holdings in the fund fell 1.80 tonnes to 804.42 tonnes on Friday. [GOL/ETF]

Buying in the physical markets was still thin with Chinese prices trading at a discount to spot gold.

(Editing by Miral Fahmy, Muralikumar Anantharaman and Joyjeet Das)