* Strong investment demand, bank worries fuel gold's rally
* BoE cuts by 50 bps, ECB keeps rates on hold at 2 pct
* Goldman Sachs ups 3-mth gold price forecast to $1,000/oz
(Recasts, updates with quotes, closing prices, adds NEW YORK
to dateline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Feb 5 (Reuters) - Gold ended 1.5 percent
higher on Thursday after the Bank of England cut its key
interest rate, triggering strong investment demand amid renewed
bank worries.
"We are seeing more investor interest in gold," said Citi
analyst David Thurtell. "Some like it as a safe haven in times
of high economic uncertainty, and others like it as a hedge
against inflation.
"While deflation is the short-term threat, there is a
concern that all this monetary and fiscal stimulus will
eventually cause inflation to explode."
Shares of U.S. banks, led by Bank of America, initially
tumbled on economic worries, but hopes that the Obama
administration's plan would help banks stem losses led a
broad-based stock recovery. []
Spot gold <XAU=> was at $914.80 an ounce at 2:07 p.m. EST
(1907 GMT), up 1.5 percent from the last trade of $904.70 on
Wednesday.
U.S. gold futures for April delivery <GCJ9> settled up
$12.00, or 1.3 percent, at $914.20 an ounce on the COMEX New
York Mercantile Exchange.
Investors also fear the large amount of government debt
poured into the banking sector will fuel inflation.
"The fact that gold as an asset class has more trust in it
than a lot of other financial products out there at the moment
means people are continuing to push money in there," said
Commerzbank trader Rory McVeigh.
Options-related buying was also cited for the rally in gold
futures.
Jonathan Jossen, a COMEX gold options floor trader, said
that heavy buying of call options and deep out-of-the-money
calls with a clear upside skew could be seen.
"A lot of people are saying when they are selling the
bonds, and when they are buying the Dow, they are buying gold.
Investors are putting a little more gold in their portfolio,"
Jossen said.
The Bank of England cut its rates by the expected half
percentage point, in an attempt to revive the flagging UK
economy. []
"The backdrop of rate cuts has been supportive for gold
over the last few weeks and months, mainly on the fear of
inflation further down the line," said VM Group analyst Matthew
Turner. "Today's moves were just a confirmation of that
theme."
The ECB opted to leave its interest rates on hold at 2
percent. The bank's president, Jean-Claude Trichet, had already
flagged that no rate cut was in the cards. []
Interest in gold as a safe store of value is fueling buying
among risk-averse investors.
The world's largest bullion-backed ETF, New York's SPDR
Gold Trust <GLD>, said its holdings hit another record on
Wednesday, rising to 859.49 tonnes. []
SAFE HAVEN BUYING
Goldman Sachs lifted its three-month gold forecast to
$1,000 an ounce from $700 an ounce, citing safe-haven demand
for the metal. []
"The gold price rally has been driven by surging demand for
gold in all forms: physical gold, exchange traded funds and
futures contracts and investors seek a 'safe store of value,'"
the bank said in a note.
"It is also important to emphasize that the recent strong
demand for gold has not been irrational, but rather pretty much
in line with the probabilities of financial and sovereign
default."
Silver <XAG=> was at $12.84 an ounce, up 2.6 percent from
its previous close of $12.51 late in New York on Wednesday.
Platinum <XPT=> was at $977.50 an ounce, up 1.4 percent from
its last finish of $964.
Palladium <XPD=> was at $199.50 an ounce, up 2.8 percent
from its previous close $194 on Wednesday. Earlier it rose
nearly 5 percent to a high of $203.50, driven by buying for
palladium-backed ETFs, dealers said.
(Editing by Jim Marshall)
