* Libya mulls Venezuelan peace proposal
* Gold rally pauses within sight of record highs
* Coming up: ECB rate decision; 1245 GMT
(Updates comment, details, prices; prvs SINGAPORE)
By Amanda Cooper
LONDON, March 3 (Reuters) - Gold eased on Thursday after the
Arab League said a Venezuelan proposal to end the Libyan
conflict was under consideration, but entrenched uncertainty
over the future of the region kept prices within sight of record
highs.
Arab League Secretary General Amr Moussa told Reuters on
Thursday that the a plan to bring peace to proposed by
Venezuelan leader Hugo Chavez was "under consideration."
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While this has eroded some of the safe-haven demand that has
shot gold and the Swiss franc to all-time highs this week,
financial markets are on edge, as reflected by volatility
indices such as the VIX <.VIX> hovering near 3-1/2 month highs.
Spot gold <XAU=>, which has risen by 10 percent in the six
weeks since the unrest in Tunisia and Egypt spilled into Libya,
Yemen, Bahrain and, most recently, Oman and Iran, hit a record
$1,440.10 an ounce on Wednesday.
The gold price was last down 0.2 percent at $1,432.30 an
ounce at 0928 GMT, while U.S. April gold futures <GCv1> were
down 0.4 percent at $1,431.40. Analysts said after having
rallied in four of the past five sessions, a modest decline did
not signify the recent rally was over.
"That's to be expected anyway, with gold having done quite a
lot over the last couple of weeks and set a new high. I don't
think it should be a surprise to see some consolidation at the
very least," said Credit Suisse analyst Tom Kendall.
"The Middle East has certainly been a big factor for gold
over the last few weeks," Kendall said. "If the situation
deteriorates, say in some of Libya's neighbours or if we saw
more widespread protests in places like Bahrain or Saudi Arabia,
then for sure you'd see another reaction in the energy markets
and in gold."
PEACE IN LIBYA?
News network Al Jazeera said earlier the plan involved a
commission from Latin America, Europe and the Middle East trying
to reach a negotiated outcome between Libyan leader Muammar
Gaddafi and rebel forces for this North African oil-producing
country. []
"If some sort of resolution is achieved for Libya, it will
certainly affect gold -- investors will take profit and adjust
their long positions," said Ong Yi Ling, an analyst at Phillip
Futures.
Brent crude <LCOc1> dropped more than $3 on the news to an
intra-day low of $113.09 a barrel, before recovering to near
$115 by 0700 GMT, while European equities pared some of the
previous day's declines and the euro <EUR=> hovered near
four-month highs ahead of a European Central Bank rate meeting.
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An interactive graphic on the unrest, click:
http://r.reuters.com/nym77r
Two-month technical outlook on gold:
http://graphics.thomsonreuters.com/WT1/20110203174116.jpg
Factbox on gold's milestones to record highs:
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Investors are braced for what could be one of the most
important ECB meetings this year, in which the bank is expected
to step up its anti-inflation rhetoric and may phase out some of
its crisis support measures. []
Most economists do not expect rate hikes to materialise
until at least October.
But at the very least there is a high chance the ECB will
restrict the amount of funds available at its three-month
liquidity tenders as it withdraws the emergency lifelines put in
place during the depths of the financial crisis.
Rising interest rates can undercut gold's appeal among
investors as it bears no yield of its own. But the subsequent
boost such an indication from the ECB could give the euro
against the dollar could prove supportive.
"Clearly there is a growing appreciation that the ECB is
likely to move faster than expected on rates and, at the same
time, the Fed is still very much on hold," said Credit Suisse's
Kendall. "So from a rates and a foreign-exchange perspective
over the medium term, certainly you would think this would be
positive for gold."
China, which has raised interest rates twice in the past six
months and increased bank reserve requirement ratios eight times
since the start of 2010, will probably raise them again this
month, as the world's second-largest economy battles stubborn
inflation. []
Silver <XAG=> was largely unchanged on the day at $34.72,
just shy of Wednesday's 31-year high at $34.96 an ounce.
Platinum <XPT=> eased 0.3 percent to $1,840.24 an ounce,
while palladium <XPD=> was up 0.1 percent at $817.28.
(Additional reporting by Rujun Shen in Singapore; Editing by
William Hardy)
