Platinum Futures Drop as Investors Shift Out of Metals to Cash

By Dave McCombs

Aug. 1 (Bloomberg) -- Platinum futures in Tokyo fell for the third time in four days amid speculation some hedge funds are selling the metal, used in jewelry and automobiles, to raise cash to cover losses on other investments.

Platinum declined 13 percent in Tokyo trading last month as car demand slumped amid signs a decline in U.S. house prices and related credit investments won't end soon. Carlyle Group, the world's second-largest private-equity firm, yesterday said it is liquidating its Blue Wave hedge fund after assets fell by a third during the credit-market collapse.

``With so much very bad news about the U.S. auto market, the market sentiment for platinum is top-heavy,'' Wakako Harada, a trader at Mitsubishi Corp. in Tokyo, said today by phone. ``Hedge funds and traders prefer to keep cash as there is a lot of concern that the U.S. housing sector is pretty week.''

Platinum for June delivery fell 1.8 percent to 5,951 yen a gram ($1,720 an ounce) at the 12:48 p.m. break on the Tokyo Commodity Exchange.

Metal for immediate delivery dropped $26 to $1,734.50 an ounce, 1.5 percent lower than yesterday in New York. Prices are down about 25 percent from the record $2,301.50 set in March.

Physical demand from Chinese buyers may limit further declines and help boost prices to above $1,900 this year, Harada of Mitsubishi said.

About half the global platinum supply is used as catalysts to reduce harmful emissions in car exhausts.

General Motors Corp., Ford Motor Co. and Chrysler LLC yesterday had their credit ratings lowered one step to junk status by Standard & Poor's over concern that shrinking U.S. auto sales will reduce cash flow.

Neither Ford nor GM has made a profit since 2005, and prospects for ending losses before 2010 are waning as they close truck plants and boost investment in fuel-efficient small cars.

To contact the reporter for this story: Dave McCombs in Tokyo at dmccombs@bloomberg.net