Thursday, Mar 03, 2011


 
   By Francesca Freeman 
   Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--Spot gold trades a tad lower in Europe Thursday after reports of a possible Libyan peace plan triggered profit taking, but the yellow metal is still on track to take out fresh highs, said market players.

Though details are sketchy, news network Al Jazeera reported that Libyan leader Moammar Gadhafi and the Arab League have accepted Venezuelan President Hugo Chavez's proposal for a mediated solution to Libya's problems.

But reports of violent clashes between Gadhafi's forces and opposition groups continued, shedding doubt on hopes for a peaceful resolution.

"We saw a knee-jerk reaction to the Libya peace deal rumors this morning, but people have since started buying the dips," said Standard Bank analyst Walter de Wet.

At 1048 GMT, spot gold traded down 0.3% at $1,429.88 a troy ounce, around $10 short of Wednesday's new record high of $1,440.45/oz.

Aside from continuing fears over conflict contagion in the Middle East and North Africa, concerns over rising global inflation should provide key support for gold in coming weeks, said de Wet.

"In the U.S. there is only a very small probability that the Federal Reserve will raise interest rates any time soon and this is very positive for gold," he said. Additionally, though the European Central Bank is likely to be relatively hawkish on inflation in its meeting Thursday an actual rate rise is unlikely at this time, de Wet said.

"If the ECB shows a tough stance over inflation--but doesn't actually raise rates--this should favor the euro and benefit gold," he said.

Gold, which is denominated in dollars, tends to benefit when other currencies outperform the greenback.

At 1047 GMT, the euro traded up against the dollar at $1.38651.

Despite Thursday's consolidation, both gold and silver should be on track to take out new highs very soon, said market players.

"With the situation in the MENA still incredibly volatile, Portugal and Greece facing the prospect of further credit downgrades and strong physical and retail investment, we expect dips to be viewed as buying opportunities with fresh highs for gold and silver still in the pipeline," said FastMarkets.com analyst James Moore.

At 1046 GMT, spot silver traded down 0.2% at $34.605/oz, after hitting its highest price since 1980 Wednesday.

Though spot platinum traded down 0.3% at $1,838.50/oz, palladium held its own in positive territory, supported by bullish sentiment toward its strong fundamental outlook. At 1045 GMT, spot palladium was up 0.3% at $819/oz.

-By Francesca Freeman, Dow Jones Newswires; +44 (0)20 7842 9412; francesca.freeman@dowjones.com

(END) Dow Jones Newswires

March 03, 2011 06:15 ET (11:15 GMT)