LONDON, Nov 24: Gold prices jumped to a five-week high on Monday as investors piled in seeking safety from financial uncertainty after the United States unveiled a $300 billion rescue package for banking giant Citigroup.

Spot gold rose more than two per cent to $818.75 an ounce, its highest since October 16 and was up at $815.85/817.95 at 1130 GMT from $799.45 an ounce on Friday when the precious metal posted its biggest daily per centage gain in two months.

The US government has agreed to inject $20 billion of new capital into Citigroup, one of the world’s biggest banks, to avoid a collapse that would have wreaked further damage to the world’s financial system.

The other is that $20 billion is a lot larger than expected, which is quite negative. The question is if Citigroup needs all this money, how much do the others need. The bottom line is good news for gold.

Analysts say action taken by governments to pump money into the banking system has helped, but that investors are not sure it is enough. Until they are sure about financial stability investors will choose gold as a store of value.

Investors have been in pure panic, they think the world is ending, said Nicholas Brooks, head of strategy at ETF Securities. When people get into that sort of mentality, one of the first places they go to is gold.

Gold hit a record high of $1,030.80 an ounce in March and has since fallen on falling oil prices and a stronger dollar.

A higher US currency makes metals priced in dollars more expensive for holders of other currencies, while gold is used as a hedge against inflation, often triggered by rising oil prices.

But oil has fallen to around $50 a barrel from a record above $147 in July.

Other commodity prices too have tumbled and the fear fast taking hold across the globe is of deflation.

To combat this central banks have slashed interest rates and many are expecting to see them fall further, possibly to zero, in the United States and many other parts of the world.

It is also why the precious metal has bounced from a 13-month low of $680.80 in October, when a sell-off in equities forced investors to sell bullion to cover losses.

Silver, tracking gold, hit $9.94 an ounce, the highest since November 11. It was at $9.96/10.04 an ounce from $9.62 on Friday. Palladium was at $184/194 an ounce from $180.

Platinum was at $832/852 an ounce from $811.50 on Friday.—Reuters