Platinum set a lifetime high for the 14th straight day on Tuesday on strong speculative buying on the back of severe output problems in top producer South Africa.

Other precious metals also advanced, with palladium hitting a 6-1/2-year high, gold rising more than 1.5 percent to trade near a record high and silver gaining nearly 2 percent.

Spot platinum hit a high of $2,160 an ounce and was quoted at $2,155/2,165 at 6 a.m. EST, against $2,105/2,115 late in London on Monday. It has gained 41 percent this year on worries about a widening market deficit.

Funds and speculative buying is continuing to grip the market. There is a general feeling out there that don't be short, be long, said Rory McVeigh, platinum group metals trader at Commerzbank.

The problem is that when they stop and people do start taking profit, the downside could be very scary.

Jewellery demand was badly hit because of high prices, dealers said, adding individual investors, specially in Asia, had been selling platinum for strong returns.

Mines across South Africa, which accounts for 80 percent of global platinum supply, have been hit by a lack of energy after state utility Eskom asked the mining sector to cut power use to 90 percent of normal needs to ease shortages.

Analysts say the global platinum deficit could widen to 400,000 to 500,000 ounces by the end of 2008, compared with about 265,000 ounces in 2007. The market had a surplus of 65,000 ounces in 2006, following seven successive years of deficits.

We see further upside for platinum, given the significant industrial demand and tight supply conditions, said Walter De Wet, precious metals analyst at Standard Bank.

However, the probability of a short-term technical correction is high, given the recent surge in the spot price.

PRODUCTION PROBLEMS

The world's No. 1 producer Anglo Platinum has said power problems would cut output by 120,000 ounces in 2008, while Impala Platinum, the world's No. 2 producer, forecast very tight market conditions.

More than 60 percent of the world's platinum output is used as catalyst in vehicles, helping to clean exhaust fumes, while nearly 25 percent goes to jewellery making.

Demand for auto catalysts jumped 2.3 percent to 4,235,000 ounces in 2007, from 4,140,000 ounces in 2006, but demand from the jewellery sector slipped 1.5 percent to 1,595,000 ounces, according to refiner Johnson Matthey.

Japanese platinum futures also hit a record, with the December contract surged 164 yen per gram to 7,064 yen.

While speculative buying lifted prices, dealers said platinum lease rates had been steady at 9 percent since January.

Lease rates are the rate at which an investor or trader borrows a metal. They usually rise when there is a shortage in the physical market.

Palladium tracked platinum, hitting a high of $485/490 an ounce, compared with $466/470 late on Monday. Silver rose to $17.26/17.31 an ounce from $17.00/17.05.

A weaker dollar against the euro and platinum's rally supported gold prices. Spot metal was at $917.00/917.70 an ounce, against Monday's $903.00/903.80 and a recent record high of $936.50.

The dollar sunk to a two-week low against the euro as fears of further large U.S. bank writedowns dented sentiment on the U.S. economy and intensified speculation of more rate cuts.

(Additional reporting by Lewa Pardomuan in Singapore)

(Editing by Editing by Peter Blackburn)

South Africa Energy Gold