* Price seen moving back through $1,000/oz on haven buying
* Selling related to gold options drags futures lower
* Palladium tumbles due to stop-loss orders in thin trade
(Recasts, updates with quotes, closing prices, adds NEW YORK
to dateline, changes byline)
By Frank Tang and Michael Taylor
NEW YORK/LONDON, Feb 23 (Reuters) - Gold retraced initial
losses but still ended lower on Monday as investors took a
breather after a recent sharp rally and as options-related
selling weighed down on prices.
But bullion was poised to resume its push higher and could
hit new peaks above $1,030 an ounce as investors worried about
the stability of the financial sector and longer-term inflation
prospects, analysts said.
Spot gold <XAU=> was at $994.75 an ounce at 2:55 p.m. EST
(1955 GMT), down 0.3 percent against its last quote $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> settled down
$7.20 at $995.00 an ounce on the COMEX division of the New York
Mercantile Exchange.
"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."
The yellow metal initially dropped as much as 2 percent as
flight-to-quality buying lessened and the stock market steadied
after a source told Reuters that the U.S. government could
raise its stake in Citigroup to as much as 40 percent.
U.S. stocks, however, turned sharply lower on mounting
uncertainty about the global economy.
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 usually 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 jewelry 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. []
OPTIONS-RELATED SELLING
Jonathan Jossen, a COMEX gold options floor trader, said
that heavy buying of outright put options pressured gold
futures as funds sought protection from a potential retracement
following a sharp rally.
Bullion, which would usually be pressured by a dollar
recovery, has recently shrugged 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
$14.45 an ounce, down 0.5 percent from its Friday finish of
$14.38.
Spot platinum <XPT=> was at $1,073.50 an ounce, down 0.6
percent from its previous close $1,080.
Palladium <XPD=> fell 8 percent to a three-week low of $195
an ounce. It was at $195.50, down 8.0 percent from its late
Friday quote $212.50 in New York on Friday.
Floor traders and analysts cited massive stop-loss orders
around the $200 level and heavy selling by funds in thin
trade.
(Additional reporting by Jan Harvey in London; Editing by
Christian Wiessner)
