* Gold up; safe haven buying in market turmoil
* Crude dips more than $5 per bbl; Lehman spooks investors
* Platinum, palladium plummet on fears over growth outlook
(Recasts, updates with quotes, closing prices, market
activity, adds NEW YORK to dateline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Sept 15 (Reuters) - Gold ended sharply
higher on Monday as fearful investors sought a safe haven after
U.S. investment bank Lehman Brothers filed for bankruptcy
protection.
Platinum and palladium also tumbled on concerns that
Lehman's insolvency could destabilize the financial sector.
Spot gold <XAU=> was at $783.10/784.70 an ounce at 2:38
p.m. EDT (1838 GMT) by New York's last quote, up from Friday's
nominal close but well off session highs of $784.90.
But traders said 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.
"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 safe-haven buying of gold and
pressuring the dollar. []
A weaker dollar typically benefits gold as it boosts the
precious metal's appeal as an alternative investment.
But a sharp drop in oil prices has pushed gold down more
than $10 from its highs.
Crude oil fell as much as $7 to well below $100 a barrel as
investors sold oil in favor 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.
Jonathan Jossen, a COMEX gold options floor trader, said
that gold should rise in the near term on safe-haven buying,
but investors' need to raise cash could still undermine gains
in the liquid gold futures market.
U.S. gold futures for December delivery <GCZ8> settled up
$22.50, or 2.9 percent, at $787.00 an ounce on the COMEX
division of the New York Mercantile Exchange.
With the market still eyeing the dollar as the main driver
of prices, however, dealers are awaiting the Fed's interest
rate 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 global growth outlook.
"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 sharply at $1,164.50/1,188.50
an ounce, while palladium <XPD=> tumbled to $231.00/241.00
compared with its Friday's close in New York.
Spot silver <XAG=> was higher at $11.04/11.12 an ounce.
Earlier it rallied 3 percent in line with gold to a session
high of $11.15 an ounce.
(Editing by Jim Marshall)
