(Kitco News) - The sharp rally in gold lately has carried the price of the yellow metal higher than platinum for the first time since late 2008.

Some analysts say this phenomenon could show up for a number of months, although by early Tuesday afternoon, gold had pared its earlier gain and platinum regained its normal upper hand, although not by much.

“The same macro concerns that are weighing upon the industrial demand for platinum are driving gold-investment demand and in turn prices to new highs,” said Suki Cooper, precious-metals analyst with Barclays Capital.

Specifically, worries about the economy, exacerbated by debt issues in the U.S. and Europe, have investors flocking into gold as a safe haven. Meanwhile, those same worries have led to ideas that demand could suffer for industrial commodities, which includes platinum along with the likes of copper and crude oil.

Just before 1 p.m. EDT, most-active October platinum had been as high as $1,757.60 an ounce so far Tuesday on the New York Mercantile Exchange. However, this fell short of the session high for the same contract month in gold (but not the most-active contract) on the Comex division. October gold earlier peaked at $1,780.90.

By contrast, platinum held a premium of more than $200 as recently as July 1, before gold began its most recent run higher. On that day, October gold hit a six-week low of $1,479.60. Platinum, at its weakest point that day, was $1,704.70.

Investors have an interest in holding gold as a currency, said Patricia Mohr, vice president with Scotiabank. This is especially occurring after Standard & Poor’s downgraded U.S. long-term debt and the European Central Bank moved to shore up the Italian and Spanish bond markets, which some market participants are assessing as a form of quantitative easing, she said.

Platinum also has some characteristics of a precious metal, but its primary use is industrial, specifically catalytic converters in motor vehicles.

“Gold is more of a currency than platinum, therefore it’s moving up relative to platinum,” Mohr said.

Investors are looking toward gold as a “store of value, safe haven, alternative or ultimate currency” due to fears of another recession, said Robin Bhar, senior metals analyst with Credit Agricole CIB. Part of the appeal of the metal is that it cannot be created easily, as with paper money.

“That has pushed gold strongly higher and to a premium (over) platinum, which we saw at the end of 2008 for a few months,” Bhar said. “It’s really based on the fact that gold would outperform platinum in a recessionary environment where there is no growth…

“Platinum, obviously, is at the other end of the spectrum. It is more of an industrial metal that responds to the industrial cycle, particularly vehicle demand. And arguably, those are going to be out of favor, or the industrial cycle is going to be weaker for the foreseeable future. So there is a good justification for having gold trading at a premium to platinum.”

Gold May Continue To Outpace Platinum As Economic Fears Persist

Analysts said gold may frequently trade higher than platinum for the next several months.

“I think it might last for the next six months, anyway,” Mohr said. She looks for interest in gold to continue for another 18 months or so. “Some of the more industrially based metals may not perform as well as gold.”

Many investors fear macroeconomic conditions will deteriorate further, continuing to support demand for gold, said Rohit Savant, senior commodity analyst with CPM Group.

“That bodes better for gold than it does for platinum,” he said. “That should keep gold at a premium. I think it will last for a few months.”

However, Savant does not look for a massive sell-off in platinum, even though demand worries will hold down prices. The market has some supply-side issues, which are also supportive influences for the longer term. These include increasing difficulties of mining far below the ground in the key producing nation of South Africa, as well as labor issues that mean higher costs and the threat of supply disruptions due to strikes. Further, there are worries about possible shortages of electricity that are necessary for full mining operations in South Africa.

Bhar looks for gold to trade at a premium for much of the rest of the year, or longer if there is a recession that lasts for a while. But in the longer term, whenever the industrial cycle picks up again, platinum should regain the upper hand against gold, Bhar said. His bank considers the global economy to be in a “soft patch” but looks for global growth to reaccelerate late in the year and into 2012.

Further, Bhar said, platinum typically is more expensive to mine than gold. The average platinum cost is in the neighborhood of $1,200 to $1,300, while gold is around $900 to $1,000.

“If we were in a growth environment and not facing the threat of recession, then arguably we should have a much more normal situation where platinum trades at some premium to the gold price,” Bhar said. He later added, “What’s happening isn’t surprising. It’s justifiable, and arguably we will see this differential—or gold’s premium maintained—certainly for the foreseeable future.”

By Allen Sykora of Kitco News; asykora@kitco.com

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