Washington (Platts)--2Aug2011/534 pm EDT/2134 GMT

As long as gold prices continue to the upside, platinum and palladium prices will be well supported, despite an expected slowdown in automobile demand, analysts with UK commodities brokerage MF Global said in a report Tuesday.

Though platinum gained about $100/oz during July, ending the month at about $1,790/oz, the metal's upside potential has been limited by a sizeable surplus, which is likely to remain despite a 10% increase in Chinese demand for platinum jewelry in the second quarter, MF Global analysts said in its monthly commodities review.

Moreover, a significant slowdown in global car sales should more than offset the increased jewelry demand, analysts said.

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"Having said this, as long as gold is well bid, it is difficult to see any of the precious metals, including platinum, from selling off substantially," MF Global analysts said.

Even so, a tipping of the global economy back into recession could decouple platinum from gold. Platinum and palladium have numerous industrial applications, but are mainly used in the production of automobile catalytic converters.

MF Global analysts expect platinum to trade between $1,730 and $1,830 for most of August.

Turning to palladium, MF Global analysts noted that the metal tested multi-month highs in July, benefiting from the flight to safety into precious metals on lingering debt concerns. Palladium ended July around $836/oz, an increase of 11.5% from the previous month.

But the surge in prices contrasts somewhat with palladium's more negative fundamentals. UK-based PGM refiner Johnson Matthey forecasts that palladium and platinum industrial demand will shrink due to increasingly poor automotive demand.

"Chart-wise, should prices manage to break $830 and pull away from it decisively, we could set the stage for a retest of the record high of $860," MF Global analysts said.

"However, we likely will not be getting there this month, and suspect that prices will instead retrace back into the trading range, likely drifting to $770 at some point in the month."

--Nick Jonson, nick_jonson@platts.com