Gold clings to $1,410; ETF holdings to 9-month low

SINGAPORE | Mon Feb 28, 2011 11:00pm EST

SINGAPORE (Reuters) - Spot gold steadied around $1,410 on Tuesday as escalating unrest in Libya and the Middle East supported safe-haven demand, though holdings in the biggest gold-backed exchange-traded fund fell to the lowest level in more than nine months.

Forces loyal to Libyan leader Muammar Gaddafi were massed near the Tunisian border on Tuesday, as the United States said it was moving warships and aircrafts closer to Libya, heightening tension in the volatile region.
Spot gold was nearly flat at $1,411 an ounce by 0339 GMT. It had been moving in a narrow range of less than $4.

The most active U.S. gold futures contract edged up 0.1 percent at $1,411.90.
"There has been some scrap selling and liquidation above $1,405," said Peter Fung, head of dealing department at Wing Fung Precious Metals in Hong Kong.

"We'll probably see a price range between $1,405 and $1,415."
But even as the political turmoil in the Middle East and North Africa continued to support safe-haven demand, improved economic prospects could weigh on gold prices, traders said.

Gold prices could drop 20 percent later this year and in 2012 as the global economy picks up, as speculators exit the market, said the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES).

Holdings in the SPDR Gold Trust dipped to the lowest since mid-May last year in a sign that investors may be switching to stocks and other assets, a dealer said.
"The money from gold ETF may have gone to the stock market, which has outperformed gold recently," said a Hong Kong-based dealer.
Spot gold inched down half a percent so far this year, compared to a 5.6 percent climb in the Dow Jones industrial average .DJI.

On the macroeconomic front, Chinese manufacturing growth slowed in February to a six-month low, according to an official survey, as the government's sustained campaign to tame inflation weighed on industrial activity.

Australia's central bank decided to keep its main cash rates steady at 4.75 percent as widely expected, said it expects the global economy continue to expand.
Brent crude held steady near $112 a barrel on Tuesday as investors remained cautious about Middle East supplies even as Saudi Arabia ramped up production to cover a drop in Libyan exports.
A sustained period of higher oil prices would significantly affect developing economies but is unlikely to derail their strong recovery since the global financial crisis, a senior World bank economist said.
 Separately, the IMF warned extended higher oil prices would hit world growth.
Spot silver edged up 0.1 percent at $33.84 an ounce, having touched an intra-day high at $33.94. It hit a 31-year high at $34.30 last week.

Gold edges above $1,410/oz on Mideast tensions

LONDON | Mon Feb 28, 2011 10:19am EST

LONDON (Reuters) - Gold rose above $1,410 an ounce on Monday as turmoil across the Middle East boosted safe-haven buying, though the metal struggled to sustain gains as investors were spooked by its proximity to record highs.

Spot gold was bid at $1,410.50 an ounce at 1502 GMT (10:02 a.m. EST), against $1,409.15 late in New York on Friday. U.S. gold futures for April delivery rose by $1.60 an ounce to $1,410.90.
 Unrest across the Middle East and North Africa, which unseated leaders in Tunisia and Egypt before spreading across Libya, Bahrain, Yemen and Oman has fueled a 6 percent rise in gold prices this month.
Prices are currently on track for their biggest one-month rise since last August, but analysts say more may be needed to take gold above its record high at $1,430.95 an ounce.

"It requires some spreading of the political turmoil and an intensification in those other countries to see gold make much bigger gains," said Mitsubishi analyst Matthew Turner.
"From a market viewpoint, gold is near its highs again. It was probably quite easy to get up to $1,400, but it will be more difficult to rise from here."

Yemen's opposition coalition said on Monday it would not join a unity government expected to be offered by President Ali Abdullah Saleh, saying it was standing with popular demands for an end to his three-decade rule.
In Oman, protesters demanding jobs and political reforms blocked roads to a main port in the north of the Gulf Arab sultanate as looters trashed a nearby supermarket, and demonstrations spread to the capital.
In Libya meanwhile, rebels downed a military aircraft as they fought a government bid to take back the country's third city, Misrata, a witness said, while foreign ministers discussed how to help them oust Muammar Gaddafi.

DOLLAR UNDER PRESSURE

A decline in the dollar, which makes commodities priced in the U.S. unit cheaper for holders of other currencies, also helped support gold.
 The dollar hit a 3-1/2-month low versus a currency basket .DXY on speculation the Federal Reserve would lag other central banks in raising interest rates to counter inflation risks stoked by rallying oil prices.
Oil prices edged a touch lower on Monday but remained elevated after hitting 2-1/2 year highs last week on the back of tensions across the Middle East and North Africa.

"Higher oil prices are a double-edged sword as far as gold is concerned," said UBS in a note. "On the plus side, should elevated oil prices persist, concerns about a corresponding negative impact on global economic growth could spurn renewed interest in safe havens.

"(But) rising oil prices also contribute to higher inflation prints. This creates a difficult task for policymakers, particularly the ECB and BoE, who are debating a return to monetary policy normalization. The return of interest rate hikes will act as an anchor for gold at lower price levels."

Among other precious metals, silver was bid at $33.66 an ounce against $33.31. Prices have rallied 19 percent this month, their biggest one-month rise since May 2009.
Among other precious metals, platinum was at $1,801.49 an ounce against $1,803.50, while palladium was at $793.47 against $785.40.