* Gold falls 2 percent to low of $980.40/oz
* Price seen moving back through $1,000/oz on haven buying
* Palladium tumbles 8 pct but fall short-lived
(Adds comment, updates prices)
By Michael Taylor and Jan Harvey
LONDON, Feb 23 (Reuters) - Gold fell as much as 2 percent on
Monday to a low of $975.00 an ounce as investors cashed in gains
after the previous session's rally and stock markets rose.
But prices are poised to resume their push higher and could
hit new peaks above $1,030 an ounce as investors worry about the
stability of the financial sector and longer-term inflation
prospects, analysts said.
At 1510 GMT, spot gold <XAU=> was trading at $984.90/986.90
an ounce versus $997.30 in New York late on Friday. It hit
$1,005.40 an ounce on Friday, just 2.5 percent below a record
$1,030.80 an ounce it reached in March last year.
U.S. gold futures for April delivery <GCJ9> on the COMEX
division of the New York Mercantile Exchange fell $15.20 to
$987.00 an ounce.
"Near term trading is on the short side, looking for a
correction," Saxo Bank senior manager Ole Hansen said. "(But)
the view is that we are still going higher."
Gold rallied sharply on Friday as equities tumbled, pushing
investment into gold.
But U.S. stocks opened higher on Monday after a positive
session in Europe, as investors took reports that Washington
could take a bigger stake in Citigroup <C.N> as a sign it will
act to prevent further bank failures. [] []
The U.S. government could raise its stake in the bank to as
much as 40 percent, a source told Reuters. []
Investor appetite for gold rose sharply as financial markets
fell and fears over long-term inflation increased due to a
massive U.S. economic stimulus package that was signed last
week. Gold is perceived as a safe-haven asset.
The world's largest gold-backed exchange-traded fund, New
York's SPDR Gold Trust <GLD>, said holdings were at a record
1,028.98 tonnes as of Feb. 22. []
Demand for gold jewellery is still low as high prices curb
buying. Gold imports into India, the world's biggest gold
market, are likely to be flat at 400 tonnes, the vice-president
of the Bombay Bullion Association said. []
INVESTMENT DEMAND
However, investment demand is more than outweighing this
fall, analysts said, and should allow gold to reach new highs
after a period of consolidation.
"Should gold actually manage to establish itself in the four
digits, then a test of its all-time high can no longer be ruled
out," precious metals house Heraeus said.
"Longer-term we cannot rule out the yellow metal climbing up
to $1,100 an ounce."
The dollar erased early losses against the euro on fears
over the outlook for the euro zone economy, after European
Central Bank President Jean-Clause Trichet said the bloc was
under severe strain. []
Bullion, which would usually be pressured by a dollar
recovery, is shrugging off moves in the currency. While gold is
usually bought as a hedge against dollar weakness, both assets
are benefiting from risk aversion.
But any further weakness in the dollar still has the scope
to boost gold, analysts say.
"It is a very long-lasting relationship between gold and the
dollar," Citi analyst David Thurtell said. "It would be a brave
person who said it was over."
Among other precious metals, spot silver <XAG=> was at
$14.26/14.31 an ounce from $14.38 on Friday.
Spot platinum <XPT=> was at $1,075.50/1,080.50 an ounce from
its previous close of $1,080.
Palladium <XPD=> meanwhile fell 8 percent before the PM fix
to a three-week low of $195 an ounce. It was later at $199/204,
down from $212.50 late in New York on Friday.
"It looks like someone came in and sold a reasonable chunk
into the market," said Commerzbank trader Rory McVeigh. "The
market has been relatively thin on palladium, so it doesn't take
a great deal to move it."
"We are seeing buying again now and it is moving back
towards the $200 levels."
(Editing by Sue Thomas)
