After rising to a 26-year high of $730 an ounce, gold prices have since come down to below $700, while platinum touched a new all time high. Gold prices had hit a record high of $850 in January 1980.

“We are targeting gold to reach $800 in 2007, but significant weakness in the dollar could deliver that level as early as the third quarter of 2006,” the JP Morgan said in a report. JP Morgan lifted its forecast for gold prices to $669 in 2006 and $756 in 2007 from $566 and $609 respectively.

Gold has risen 40 per cent this year and 70 per cent in the past 12 months as investors diversify into precious metals as a hedge against global tensions, including those over US-Iran relations, high oil prices and dollar instability.

On May 17, the metal turned lower as the dollar rallied following the release of strong US consumer prices figures, which triggered speculation the Federal Reserve might not be done raising interest rates just get. In late London trading spot gold stood at $689.20

We still see gold and silver prices higher on a one and three month view, said John Reade, analyst at UBS Investment bank. Some analysts said gold prices might drop further before moving back towards this month’s peaks.

Meanwhile, platinum prices extended sharp gains to set a new record high on a positive supply – demand outlook and dollar weakness.

Prices of platinum, mainly used in jewellery and in car exhaust systems, were seen volatile ahead of the Platinum Week event starting in London on May15 and the release of an industry report by Johnson Matthey, the world’s top platinum distributor.

“There is more fundamental justification for platinum. We believe that even at these high prices, the platinum market is in deficit at the moment,” said John Reade, analyst at UBS Investment Bank.

China witnessed good consumer demand in the last few months and generally users, rather than speculators and investors, had been buying the metal, he said. Platinum reached a record high of $1,334 an ounce before easing to $1,320/1,328 by 1446GMT, against $1,291/1,298 in New York late on May 11.

The platinum market was in deficit for the seventh year in a row in 2005 as robust demand from the automobile sector negated a consumption drop in the jewellery market. The price has jumped 58 per cent in the past 12 months, and added more than $150, or 13 per cent, in the past seven days.

Rhodium, a metal used in the manufacture of auto catalyst, traded at $6000 an ounce in Europe on May 17, for the first time since January 1991 as supply tightness gripped the market. Rhodium is a minor platinum group metal and is also used in the glass making industry and in chemicals. Prices have risen steadily from the depressed levels of $500 seen in 2004 and have significant upside potential given that the all-time high has $7000.

Demand for platinum at least remains strong and sustainable, according to figures released on May 15 in the Johnson Matthey Platinum 2006 Review, which is widely regarded as the most authoritative analysis of the market.

An eighth-consecutive annual deficit in the supply of platinum in 2006 is forecast by Johnson Matthey, which markets the metal on behalf of Anglo Platinum, the world’s largest platinum producer.

Demand for diesel autocatalysts, which lower car emissions, remains robust, particularly in Europe, and even though buying of platinum jewellery among the well-heeled in China, Japan and the US has slipped, it remains a key component.

Johnson Matthey said platinum demand rose 4.8 per cent to 6.70 million troy ounces last year, while supply rose 2.2 per cent to 6.63 million troy ounces, leaving a deficit of 70,000 troy ounces.

Palladium supply dipped by 2.2 per cent to 8.38 million troy ounces and demand rose 7.3 per cent to a five-year high of 7.04 million troy ounces, although this increase was not enough to swallow up a fifth successive annual surplus.

The acceleration in platinum’s rally this year has pushed the spot price beyond the top of Johnson Matthey’s six-month forecast range of $1,250 a troy ounce. The downside is expected to be limited to $1,025 due to good end user demand.

Johnson Matthey’s forecast range for palladium, currently trading at $355 a troy ounce, predicts a move as high as $420 over the next six months, although sell-off speculative investors could drag the price as low as $260, the report says.

Johnson Matthey’s review highlighted a number of emerging sources of demand, which are of growing importance for platinum. Personal computers and consumer products containing hard disks drove a one-fifth increase in demand by the electrical industry, while sales to the glass industry also rose 20 per cent last year.

Rapid expansion in consumer demand for flat-screen computer monitors and liquid crystal display televisions led to substantial investment in production facilities in Japan and Asia.

Last year, demand for platinum jewellery fell nine per cent, dropping below two million troy ounces for the first time since 1996. In marked contrast, demand for palladium jewellery soared 54 per cent to 1.43 million troy ounce in 2005. This was almost entirely due to the rapid expansion in china, which bought 1.2 million troy ounces of palladium jewellery.

Platinum supplies from South Africa, which accounts for more than three-quarters of global production of the metal, are expected to rise this year in response to high prices, but any continuation of last year’s output problems could drag the market into a deeper deficit.

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