* Gold up on safe haven buying but off highs as oil plummets
* Crude dips more than $7/bbl as Lehman spooks investors
* Platinum, palladium plummet on fears over growth outlook
(Adds comment, updates prices)
By Jan Harvey
LONDON, Sept 15 (Reuters) - Gold rose on Monday on safe
haven buying after Lehman Brothers filed for bankruptcy
protection, but retreated from the highs it hit earlier in the
session after oil fell sharply.
Platinum and palladium also tumbled as investors worried
about the outlook for economic growth, amid fears Lehman's
insolvency could destabilise the financial sector.
Spot gold <XAU=> was at $775.30/776.90 at 1427 GMT, up
$11.85 from Friday's nominal close in New York but well off
session highs of $784.90.
Traders say squaring of open positions in precious metals by
Lehman and Merrill Lynch, whose takeover by Bank of America was
also announced on Monday, could still push gold prices either
way, however.
"We expect high volatility in the market in any direction,"
said Commerzbank senior trader Michael Kempinski. "We need a
washout of all the positions which have to be squared."
"There is some safe haven buying going on at the moment, but
when the banks have to liquidate their long positions... this
may not appear in the price," he added.
Gold rose sharply earlier in the session as news broke of
Lehman's bankruptcy, spurring buying of gold as a safe haven and
pressuring the dollar. []
A weaker dollar typically benefits gold as it boosts the
precious metal's appeal as an alternative investment.
Traders were further spooked by news that Bank of America
has agreed to buy Merrill Lynch, increasing fears over the
stability of the global financial system. []
But a sharp drop in oil prices has pressured gold more than
$10 from its highs.
Crude fell more than $7 to well below $100 a barrel as
investors sold oil in favour of safer assets, and as Hurricane
Ike spared most Gulf of Mexico oil infrastructure.
[]
Lower oil prices are reducing investors' interest in gold as
an inflation hedge, analysts said.
"Crude oil is trading significantly below the $100/bbl mark,
which is limiting the rebound of gold," said Dresdner Kleinwort
in a note.
With the market still eyeing the dollar as the main driver
of prices, however, dealers are awaiting the Fed's interest
rates decision due on Tuesday for clues as to the future
direction of the U.S. currency.
ETF SALES
Investor selling of gold held by exchange-traded funds is
also knocking confidence in the precious metal, analysts said.
ETF Securities said on Monday that the amount of gold it
holds to back its Physical Gold <PHAU.L> exchange-traded
commodity fell 16 percent last week to 1.551 million ounces.
[]
The world's biggest gold-backed ETF, SPDR Gold Trust <GLD>,
said its holdings have fallen more than 37 tonnes, or 5 percent,
since the beginning of September.
Among other precious metals, platinum and palladium headed
lower after last week's bounce, tracking losses in the base
metals as investors worried about the outlook for global growth.
"Platinum and palladium are following what is happening in
the base metals, which looks like another round of selling, as
people are increasingly concerned about the outlook for the
economy in the United States," said Mitsubishi precious metals
strategist Tom Kendall.
Spot platinum <XPT=> was down $50 or 4 percent at
$1,152.50/1,182.50 an ounce, while palladium <XPD=> fell $12 or
5 percent to $230.50/240.50.
Spot silver <XAG=> was unchanged at $10.83/10.88 an ounce.
Earlier it rallied 3 percent in line with gold to a session high
of $11.15 an ounce.
(Reporting by Jan Harvey; Editing by Editing by Peter
Blackburn)
