Platinum price soars on trade fund rumour

Platinum prices hit a record high yesterday on rumours that a bank was about to launch a new index to enable investors to bet on the metal without having to make a physical purchase.

Prices touched $1,402.50 an ounce on the London market, an 11 per cent jump, before falling back to $1,390. As recently as Friday, the price was at $1,140. The cost of platinum has risen 33 per cent this year on the back of strong industrial demand and a broad-based commodities boom.

But analysts said yesterday's move was driven by rumours of the creation of an exchange traded fund (ETF) that would encourage more investors into the market.

Stephen Briggs at SG Corporate and Investment Banking, said ETFs tended to require the fund to hold the physical metal needed to match the warrants sold to investors. He said that since platinum was a relatively modern metal there was unlikely to be sufficient of it in circulation to back the trades.

When Barclays Capital began offering a silver-backed ETF in April, the metal had its biggest gain in 11 years. Barclays Capital has said it has no immediate plans to launch a platinum ETF.

The Financial Services Authority in London confirmed that plans for an ETF needed its approval but declined to comment on whether it had received an application

Mr Briggs said denials by banks would do little to quell the speculative froth: "This volatility is here to stay until there's some resolution because it is too big for the market to take on."

The rumours sent shares in Lonmin, the African mining firm specialising in platinum, up more than 3 per cent, making it the second-largest FTSE 100 gainer.