Here's what I know about graphite:
Graphite –The mineral Graphite is a crystalline form of Carbon. Graphite lubricant (powder) is made from super-finely ground graphite pieces or chunks. Graphite powder will absorb moisture and clump, basically returning to its pre-ground form (little rocks). It is for this reason that you should never use graphite in fishing reel bearings (or in any other precision mechanism.) I learned about graphite from a well-experienced and educated locksmith while working part-time for him.
Excerpt from Alan's posting - http://alantani.com/index.php?topic=50.0
I don't use it in any part of anything that might get wet or damp.