* Gold jumps as financial uncertainty dominates
* Citigroup rescue could be a sign of more to come
* Falling interest rates make gold attractive
(Recasts, with quotes, closing prices, market activity, adds
NEW YORK dateline/byline)
By Frank Tang and Pratima Desai
NEW YORK/LONDON, Nov 24 (Reuters) - Gold prices hit 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.
Some traders also cited long-term inflation worries from a
rising money supply after the U.S. government agreed to
shoulder most of the potential losses of Citigroup from $306
billion in the bank's risky assets and inject $20 billion in
new capital. []
Platinum rose about 5 percent, tracking gold, while
palladium and industrial metal silver gained around 8 percent.
"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, an
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."
Spot gold <XAU=> was at $816.10 an ounce at 2:12 p.m. EST
(1912 GMT), up 2.1 percent from Friday's close of $799.45.
U.S. gold futures for December delivery <GCZ8> settled up
$27.70, or 3.5 percent, at $819.50 an ounce on the COMEX
division of the New York Mercantile Exchange.
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."
Zachary Oxman, senior trader at Wisdom Financial, said
gold's sharp upward move was correlated to a stock market rally
and a sharply weaker dollar in oversold market conditions.
"Diversification right now is very tough to find because
everything is moving in the same way," Oxman said.
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>.
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 $10.62 an ounce, its
highest level since Nov 6. It was later at $10.41, up 8.2
percent from Friday's finish. Palladium <XPD=> was at $191.00,
up 6.1 percent from its previous close of $180.
Platinum <XPT=> hit $865 an ounce, the highest since Nov.
10, and was last at $855.00, 5.4 percent higher than Friday's
late quote of $811.50.
The metal, used to make autocatalysts, has come under heavy
selling pressure as news from the auto sector in recent weeks
has steadily deteriorated.
(Additional reporting by Michael Taylor in London; Editing by
Walter Bagley)
