* Gold jumps as financial uncertainty dominates
* Citigroup rescue could be a sign of more to come
* Falling interest rates makes gold attractive
By Pratima Desai
LONDON, Nov 24 (Reuters) - Gold prices jumped to a five-
week high on Monday as investors piled in seeking safety from
financial uncertainty after the United States unveiled a $300
billion rescue package for banking giant Citigroup <C.N>.
Spot gold <XAU=> rose more than two percent to $818.75 an
ounce, its highest since October 16 and was up at $815.85/817.95
at 1130 GMT from $799.45 an ounce on Friday when the precious
metal posted its biggest daily percentage gain in two months.
The U.S. government has agreed to inject $20 billion of new
capital into Citigroup, one of the world's biggest banks, to
avoid a collapse that would have wreaked further damage to the
world's financial system. []
"The Citigroup news can be read in two ways. One is relief
because the bank was teetering on the brink, and that will be
reflected in higher equity valuations," said Robin Bhar, analyst
at Calyon.
"The other is that $20 billion is a lot larger than
expected, which is quite negative. The question is if Citigroup
needs all this money, how much do the others need. The bottom
line is good news for gold."
Analysts say action taken by governments to pump money into
the banking system has helped, but that investors are not sure
it is enough. Until they are sure about financial stability
investors will choose gold as a store of value.
"Investors have been in pure panic, they think the world is
ending," said Nicholas Brooks, head of strategy at ETF
Securities. "When people get into that sort of mentality, one of
the first places they go to is gold."
SENSE OF FOREBODING
Gold hit a record high of $1,030.80 an ounce in March and
has since fallen on falling oil prices and a stronger dollar.
A higher U.S. currency makes metals priced in dollars more
expensive for holders of other currencies, while gold is used as
a hedge against inflation, often triggered by rising oil prices.
But oil has fallen to around $50 a barrel from a record
above $147 in July. []
Other commodity prices too have tumbled and the fear fast
taking hold across the globe is of deflation. []
To combat this central banks have slashed interest rates and
many are expecting to see them fall further, possibly to zero,
in the United States and many other parts of the world.
"There is a sense of Armageddon, a sense of foreboding,
deflation is being talked about," Bhar said. "As interest rates
fall, gold becomes more attractive."
That is because the interest earned on deposits falls, which
will put cash on a par with gold.
It is also why the precious metal has bounced from a
13-month low of $680.80 in October, when a sell-off in equities
forced investors to sell bullion to cover losses.
Silver <XAG=>, tracking gold, hit $9.94 an ounce, the
highest since November 11. It was at $9.96/10.04 an ounce from
$9.62 on Friday. Palladium <XPD=> was at $184/194 an ounce from
$180.
Platinum <XPT=> was at $832/852 an ounce from $811.50 on
Friday. The metal used to make autocatalysts has come under
heavy selling pressure as news from the auto sector in recent
weeks has steadily deteriorated.
"In the near term, concerns about economic growth and the
slowdown in vehicle sales are likely to keep platinum prices
under pressure," Barclays said in a note.
"But beyond short term weakness, upside potential still
exists for prices longer term, as supply problems are likely to
persist given the power problems (in South Africa), the shortage
of skilled labour and the high level of costs of production.
(Reporting by Pratima Desai; editing by Peter Blackburn)
