Gold surged on Monday, helped by higher oil prices, a lower dollar and investor concern about inflationary pressures given the large amounts of money being pumped into the global economy.

Autocatalyst material platinum jumped more than 6 percent to $840 an ounce, while palladium gained more than 11 percent to $178 on growing optimism about a rescue for the auto industry in the United States.

Spot gold rose nearly 3 percent to $776.70 an ounce and was up at $773.90/775.90 at 1030 GMT from $754.60 in New York late on Friday, when it fell to $740.40, the lowest since November 20 in a commodities-wide sell-off.

To some, talk of inflation is premature given the world is currently grappling with the prospect of deflation, but forward looking investors are adding to their holdings of the precious metal to preserve the value of their portfolios.

“We will see some deflation, but that will be short lived and the inflationary impact of substantial fiscal stimulus … will inevitably lead to inflation,” said John Meyer, analyst at investment bank Fairfax.

“Gold will be an important commodity in the protection of value,” he said. Fairfax expects gold to average $900 an ounce next year compared with a previous forecast at $550. Central banks have pumped cash into the world’s financial system and slashed interest rates in an attempt to ease the credit crunch and boost confidence.

Chinese and European leaders are due to plot their next steps on Monday to move the world economy back from a precipice, while stimulus measures presented, planned or pending injected optimism into stock markets.

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Adding to investor worries about inflation was oil , which leapt 6 percent to above $43 a barrel.

Gold often rises in line with oil, which can trigger inflation, while a weaker U.S. currency makes metals priced in dollars cheaper for holders of other currencies.

“The dollar and oil are doing their bit for gold, but we are seeing a lot of investor interest in gold,” a trader said.

The U.S. Senate will reconvene later on Monday as negotiators seek to draft legislation to provide the three largest automakers with $15 billion in short-term loans.

Expectations that the plan could be agreed were bolstered after U.S. President-elect Barack Obama said the auto industry could not be allowed to collapse.

The news boosted platinum and palladium, used to make auto catalysts that cut carbon emissions.

Palladium was at $178/185 an ounce from $159.50 on Friday and platinum at $839/859 from $788.

“Having sustained substantial price corrections between July-October, platinum is currently benefiting from a good degree of bargain hunting buying, mainly from those with longer-term outlooks,” TheBullionDesk.com said in a note.

“However, with more negative auto data expected and commodities generally under pressure the short-term view is still a little negative.”

Spot silver rose nearly 5 percent to $9.91 and was at $9.84/9.82 from $9.45 on Friday.

Pratima Desai , Peter Blackburn
LONDON, Dec 8