* ECB comments stoke speculation for euro zone rate rise
* Euro-priced gold slips as euro climbs versus dollar
* Arab states mull Venezuelan peace proposal
(Updates throughout, updates prices)
By Amanda Cooper and Jan Harvey
LONDON, March 3 (Reuters) - Gold fell more than 1 percent on
Thursday, extending earlier losses, after comments from European
Central Bank chief Jean-Claude Trichet were interpreted to mean
euro zone interest rates may rise sooner rather than later.
The metal had already retreated from the last session's
record highs after the Arab League said a Venezuelan proposal to
end conflict in Libya was under consideration, though unrest in
the region is still strongly supporting gold.
Spot gold <XAU=> fell as low as $1,417.22 an ounce and was
bid at $1,422.97 an ounce at 1424 GMT, against $1,434.49 late in
New York on Wednesday. U.S. gold futures for April delivery
<GCJ1> fell $13.70 an ounce to $1,424.00.
VTB Capital analyst Andrey Kryuchenkov said while a number
of factors were still supporting gold, including unrest in the
Middle East, any suggestion that interest rates were set to rise
was likely to put pressure on gold prices.
"Due to civil unrest in the Middle East/North Africa region,
the downside is still limited," he said. "Yet (the ECB comment)
is still important, as it gives you a sense of things to come.
Rates will have to rise, and currency yields (will be) up."
ECB President Trichet said on Thursday that inflationary
pressures have increased over the last month, risks are to the
upside and "strong vigilance" is required. His remarks pushed
the euro <EUR=> sharply higher versus the dollar. []
"This is the type of language that in previous rate hike
cycles preceded a rate hike," said currency strategists at
Action Economics.
Widespread low interest rates, which have knocked the appeal
of other assets such as cash on deposit, have burnished gold's
appeal in recent years, helping to drive prices to record highs.
Euro zone interest rate and German Bund futures fell on
Thursday after Trichet said it was essential to keep a firm
anchor on inflation expectations. []
LIBYA SIMMERS
An earlier retreat in risk aversion had already weighed on
gold, pulling prices back from the record $1,440.10 an ounce
they hit on Wednesday, after the Arab League said a Venezuelan
proposal to end the Libyan conflict was under consideration.
Oil prices slipped sharply after the report, retreating
further from the 2-1/2 year high they hit last week on fears the
unrest in Libya would spread further across the oil-producing
region. []
Spot gold has risen by 10 percent in the six weeks since
unrest in Tunisia and Egypt spilled into Libya, Yemen, Bahrain
and, most recently, Oman and Iran.
Thursday's correction notwithstanding, the situation is
still likely to underpin gold prices, as analysts are sceptical
over the latest news.
"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
commodities 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.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
An interactive graphic on the unrest, click:
http://r.reuters.com/nym77r
For more stories on gold's rally: []
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Silver <XAG=> fell 0.6 percent to $34.47 an ounce, shy of
Wednesday's 31-year high at $34.96.
"Despite silver's weak underlying balance, we retain our
positive outlook for prices as investment demand remains in the
driving seat," said Barclays Capital in a note.
"The drivers behind that demand shadow the interest in
gold."
Platinum <XPT=> eased 0.5 percent to $1,836.74 an ounce,
while palladium <XPD=> was down 0.5 percent at $812.98.
(Editing by William Hardy)
