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Platinum and palladium prices rallied to their highest in over 17 months on Monday, on the back of investment demand, buoyed by the launch of new U.S.-based exchange-traded funds earlier this month.

Analysts saw further upside for both platinum and palladium which have risen 14 per cent and 28 per cent respectively since late December, with several analysts favouring palladium due to its better fundamentals.

The rise of platinum group metals (PGM) and the U.S. dollar's slight fall against a basket of currencies lifted gold , but analysts said fresh impetus was needed to push bullion higher as there was little support from currency markets with the euro under pressure.

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Spot platinum rose as high as $1,626.00 per ounce, its highest since August 2008, and was at $1,621.50 an ounce by 1028 GMT, versus $1,596.50 an ounce late in New York on Friday.

Spot palladium rose as high as $457.50 an ounce, its highest since early July 2008, and up at $456.50 from Friday's $452.50 an ounce.

"We see follow-on buying from the launch of ETFs. There's good interest in both metals," said precious metals strategist Tom Kendall at Mitsubishi. "For palladium $500 an ounce is a very obvious target and wholly achievable in the 3-6 months."

Mr. Kendall said the market looked more bullish on palladium than platinum as the former's growth profile in terms of its uses in autocatalysts looked better than platinum.

"The extraordinary popularity of these investment vehicles illustrates: a) consensus over the favourable fundamental outlook for the PGMs; and b) the appetite for investment in the precious metals space has yet to be satiated," Morgan Stanley said in a research note.

Fresh Impetus Needed

Gold prices were up slightly but the topside was limited as the euro remained under the pressure due to Greece's financial problems and concerns over their potential impact on the single currency.

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Investors have also kept on the sidelines due to the closure of New York markets on Monday for Martin Luther King Jr. Day.

Spot gold inched up to $1,136.10 per ounce compared with $1,129.90 an ounce late in New York on Friday. U.S. gold futures for February delivery were at $1,135.90 per ounce, up 0.5 per cent.

"Until we get fresh momentum based on an event or data, gold is going to continue to struggle as long as the dollar is being preferred versus the euro," Mr. Kendall said.

Concerns over Greece and its ballooning fiscal deficit weighed on the single currency and market players will keep a close eye on comments from euro zone finance ministers meeting on Monday.

Spot gold hit a five-week high of $1,161.50 on Jan. 11. Gold has fallen 2.3 per cent since then, as a rise in the greenback hurt investor sentiment.

The high prices of gold has hurt Italian jewellers, who are now turning to alternative materials such as leather, textiles and ceramics to offset the high prices, an industry exectuive at the Vicenza trade fair said.

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The holdings by the world's largest gold-backed exchange-traded fund, SPDR Gold Trust , fell 0.914 tonnes to 1,112.836 tonnes on Jan 15.

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