* Arab states mull Venezuelan peace proposal
* Gold rally pauses within sight of record highs
* Coming up: ECB rate decision; 1245 GMT
(Updates with comment, refreshes prices)
By Amanda Cooper
LONDON, March 3 (Reuters) - Gold slipped on Thursday after
the Arab League said a Venezuelan proposal to end the Libyan
conflict was under consideration, but uncertainty over the
future of the region kept prices in 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 0.4 percent at $1,428.66 an
ounce at 1145 GMT, while U.S. April gold futures <GCv1> were
down 0.6 percent at $1,429.30.
"I doubt a Chavez-brokered deal would have much impact from
a political perspective as he has little legitimacy in the
international political sphere," said Cedric Chehab, head of
commoodities analysis at Business Monitor, a research group.
"In terms of risk, we expect any rise in tension to raise
oil prices, which will likely see risk aversion rise, and result
in lower commodity prices, particularly for those correlated to
risk appetite and the industrial cycle such as base metals. Gold
and silver would remain supported as investors continue to move
into 'safe haven' assets," he said.
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."
Brent crude <LCOc1> dropped by as much as $3 before
recovering to near $115, which in turn boosted European shares,
while 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.
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=> fell 0.5 percent to $34.51 an ounce, but held
just shy of Wednesday's 31-year high at $34.96.
Platinum <XPT=> eased 0.1 percent to $1,843.49 an ounce,
while palladium <XPD=> was up 0.1 percent at $817.72.
(Additional reporting by Rujun Shen in Singapore; Editing by
William Hardy)
