* Strong physical investment and jewelry demand boost gold
* US stocks plunge 6 pct as investors seek safety in gold
* Recession, deflation knock sentiment
(Recasts, updates with quotes, closing prices, market
activity, adds NEW YORK to dateline)
By Frank Tang and Pratima Desai
NEW YORK/LONDON, Nov 20 (Reuters) - Gold prices ended
higher on Thursday, buoyed by interest from jewelry makers and
as investors sought safety after U.S. stocks plunged nearly 7
percent on mounting worries about a deepening economic slump.
Spot platinum <XPT=> fell to a three-week low of $764.50 an
ounce, a fall of nearly 6 percent from Wednesday's close of
$808.50, as news from the auto industry reinforced demand
worries for the metal used in autocatalysts.[]
Spot gold <XAU=> was at $748.50 at 2:12 p.m. EST (1912
GMT), up 2.1 percent from Wednesday's close of $732.40.
"Investment demand for gold should hold up because there is
strong risk aversion in the markets right now. That's why we
are optimistic gold will hold up," Barbara Lambrecht, analyst
at Commerzbank, said.
Broad-based Standard & Poor's 500 index <.SPX> slumped to
its lowest level since April 1997 in Thursday's late trade,
while the blue-chip Dow Jones industrial average lost nearly
500 points to about 7,500. []
Gold is used as a hedge against turmoil in financial
markets -- equity prices in Europe and the United States are
trading at their lowest levels in more than five years. []
[]
U.S. gold futures for December delivery <GCZ8> settled up
$12.70, or 1.7 percent, at $748.70 an ounce on the COMEX
division of the New York Mercantile Exchange.
Carlos Sanchez, precious metals analyst at CPM group, said
the ongoing strength of the physical gold market, featuring
unprecedented demand for gold coins and bars, lifted prices on
Thursday.
Data from the World Gold Council showing an 18 percent jump
in demand for gold to 1,334.4 tonnes and a 56 percent rise in
investment demand to 382.1 tonnes in the third quarter has
helped sentiment. []
Bullion is also used as an alternative currency to the
dollar when it is falling. But when the U.S. currency is rising
it makes metals denominated in dollars more expensive for
holders of other currencies.
The dollar rose against the euro as investors bought U.S.
short-term Treasury bills as a safe haven. []
"Gold is following the dollar closely," Lambrecht said.
"There is a risk recession could dampen jewelry demand."
DEFLATIONARY IMPULSE
Fears of rising inflationary pressures, crisis in credit
markets and the dollar's collapse earlier this year pushed gold
prices to a record $1,030.80 an ounce in March.
But now weighing on gold is the prospect of deflation, with
recession now a reality in Japan and Germany. []
"Deflationary impulses in the economy, according to
monetary theory, are negative for gold prices, as they increase
the purchasing power of currencies and reduce the need to own
gold as an inflation hedge," HSBC said in a note.
"A low risk of outright deflation may help put a floor
under gold prices ... The inability of oil to rally is another
sign of deflation," HSBC said.
Crude oil <CLc1> slid below $50 a barrel, ending at a
3-1/2-year low. Prices are down more than 60 percent since a
record above $147 a barrel in July on the weak outlook for
demand. []
Growth fears have also hit platinum, used to make
autocatalysts that clean car emissions. Platinum prices have
plunged from $2,290 an ounce in March.
News of falling car sales and a rapidly deteriorating
outlook for the auto sector accelerated the sell-off.
Silver <XAG=> tracked gold lower to fall as much as 5
percent. It ended at $9.09, down 1.3 percent from Wednesday's
finish of $9.24.
Palladium <XPD=> fetched $177.00, down 1.9 percent from its
previous close of $180.50 following Wednesday's sharp decline.
(Editing by Christian Wiessner)
