Nov. 6 (Bloomberg) -- Platinum prices fell on speculation that demand for the metal used in auto parts and jewelry may weaken further as the U.S. unemployment rate surged to a 26-year high last month. Palladium also declined.

U.S. employers cut more jobs than forecast, underscoring the Federal Reserve’s decision to hold interest rates near zero. The jobless rate climbed to 10.2 percent in October as 190,000 jobs were erased, the Labor Department reported today. That figure topped the 175,000 median estimate of 84 economists surveyed by Bloomberg News.

“People don’t have money to spend,” said Miguel Perez- Santalla, a Heraeus Precious Metals Management sales vice president in New York. “There is no fundamental demand at the moment. Jewelry is dead.”

Platinum futures for January delivery fell $14.70, or 1.1 percent, to $1,348.20 an ounce on the New York Mercantile Exchange. The drop pared the week’s gain to 1.7 percent.

“Commodities have been inflated -- it’s a new bubble,” Perez-Santalla said. “I expect precious metals to come off by the end of the year.”

Gold may fall and platinum may decline to between $1,000 and $1,100 by year-end, he said. Gold reached a record $1,101.90 an ounce in New York today.

“Platinum has a lot of room on the downside,” Perez- Santalla said. “I don’t see inflation any time soon” and the dollar is expected to recover, he said.

The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, fell as much as 0.3 percent today. Some investors buy precious metals to preserve value when the dollar weakens.

Palladium futures for December delivery sank $1.15, or 0.4 percent, to $330.70 an ounce in New York. The metal is up 2.3 percent from last week.

To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net.

Last Updated: November 6, 2009 13:47 EST