(Updates prices, adds graphic)
* Palladium peaks at $1,458/oz, strongest on record
* Gold likely to retest $1,326 level again - analyst
* Dollar falls from two-month high
* GRAPHIC-2019 asset returns: http://tmsnrt.rs/2jvdmXl
By K. Sathya Narayanan
Feb 18 (Reuters) - Palladium surged to a record high on Monday as a sustained supply deficit boosted the investment case for the autocatalyst metal, while gold rose to its strongest in more than two weeks on a lower dollar.
Spot palladium XPD= rose to a peak of $1,458 per ounce, its highest on record, and was up 1.5 percent at $1,454 per ounce as of 1305 GMT.
Autocatalyst manufacturer Johnson Matthey JMAT.L said in a report last week that the deficit in the palladium market will widen dramatically this year as stricter emissions standards increase demand. market is fundamentally strong," Julius Baer analyst Carsten Menke said. "(The) ongoing deficit and autocatalyst producers saying they are not seeing broad-based substitution from palladium to platinum really reinforce the prevailing positive sentiment."
Both metals are primarily consumed by automakers for use in catalytic converter manufacturing, but platinum is more heavily used in the diesel vehicles that have fallen out of favour since the Volkswagen (DE:VOWG_p) emissions-rigging scandal broke in 2015.
Palladium, unlike platinum, has benefited from a switch to petrol engines and expectations for growth in hybrid electric vehicles, which tend to be partly gasoline-powered.
This has helped the metal largely ignore falling car sales across the globe. demand is good, but not booming considering how weak the car markets are. (However) the case for a multi-year deficit is much more compelling, and there is a very good price trend, attracting a lot of investment demand," Menke said.
However while prices are likely to climb in the short term, he said, "in the longer term, say the next 12 months, assuming global car sales fail to rebound as the global economy slows, prices will be pushed back".
Meanwhile, spot gold XAU= rose 0.3 percent to $1,325.51 per ounce, having earlier hit its highest since the end of January at $1,326.07 as the dollar weakened on rising optimism for a trade deal between the world's two largest economies. USD/ gold futures GCcv1 rose 0.5 percent to $1,328.90 per ounce.
"The market will be looking closely at U.S. and China data and gold could target a retest of the $1,326 level," said Nicholas Frappell, global general manager at ABC Bullion.
Investors will also be looking ahead to minutes of the U.S. Federal Reserve's January policy meeting on Wednesday for further clarity on interest rate hikes this year. Higher rates tend to weigh on non-yielding gold.
Among other precious metals, platinum XPT= rose 0.5 percent to $806.20 per ounce, having earlier touched a near two-week high of $807, while silver XAG= was up 0.2 percent at $15.80.
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