* Gold jumps as financial uncertainty dominates
* Citigroup rescue could be a sign of more to come
* Falling interest rates makes gold attractive
(Updates prices, adds comment)
By Pratima Desai and Michael Taylor
LONDON, Nov 24 (Reuters) - Gold jumped to a five-week high
on Monday as investors piled in seeking safety after the U.S.
rescue of banking giant Citigroup <C.N> reinforced financial
uncertainty.
The United States government unveiled a $300 billion rescue
package for banking giant Citigroup <C.N> in its biggest rescue
of a bank yet. []
Platinum rose about 5 percent, tracking gold, while
palladium and industrial metal silver gained around 8 percent.
Spot gold <XAU=> rose nearly three percent to $825.20 an
ounce, its highest since Oct 16 and was up at $824.9/$826.9 at
1520 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," Nicholas Brooks, head of strategy at ETF Securities,
said. "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 dropped 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.
The waning influence of the dollar and investors growing
appetite for gold can be seen in other major currencies, such as
sterling <XAUGBP=R> and the Australian dollar <XAUAUD=R>.
Gold is used as a hedge against inflation, often triggered
by rising oil prices, which have fallen to around $50 a barrel
from a record above $147 in July. []
Other commodity prices have also 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=> tracked gold, hitting $10.44 an ounce to its
highest level since Nov 10. It was at $10.44/$10.51 an ounce
from $9.62 in New York late on Friday. Palladium <XPD=> was at
$192.00/202.00 an ounce from $180.
Platinum <XPT=> hit $852.5 an ounce, the highest since Nov
17 and was at $850/$870 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.
"A continuation of Friday (and) helped by the weakening of
the dollar but it's clearly more than that," Stephen Briggs,
commodity strategist at UBS, said.
"Probably Citi bank has got something to do with it but
that's a symptom rather... the nervousness about the state of
the financial world and the economy.
"We think the conditions generally are favourable for gold.
There is a feeling out there that the problems in the world are
not really getting any better and this is a general environment
which favours gold."
(Additional reporting by Michael Taylor; editing by Sue Thomas)
(Reporting by Pratima Desai; editing by Peter Blackburn)
