* ECB comments stoke speculation for euro zone rate rise
* Euro-priced gold slips as euro climbs versus dollar
* Arab states mull Venezuelan peace proposal
(Adds detail, updates prices)
By Amanda Cooper and Jan Harvey
LONDON, March 3 (Reuters) - Gold fell 1 percent on Thursday
as European Central Bank chief Jean-Claude Trichet said the bank
will exercise "strong vigilance" over inflation, raising the
prospect that it may lift interest rates as soon as next month.
Spot gold <XAU=> fell as low as $1,417.22 an ounce and was
at $1,422.55 an ounce at 1508 GMT, against $1,434.49 late in New
York on Wednesday. The metal fixed at $1,421.50 at 1500 GMT.
U.S. gold futures for April delivery <GCJ1> fell $15.50 an
ounce to $1,422.20.
The metal had retreated from the previous session's record
highs earlier with investors seizing a chance to take profits
after the Arab League said a Venezuelan proposal to end conflict
in Libya was under consideration. But prices still found
residual support from unrest in the region.
Trichet said 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 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. []
VTB Capital analyst Andrey Kryuchenkov said while a number
of factors were still supporting gold, including violence in
Libya, any suggestion that interest rates were set to rise was
likely to put pressure on the metal.
"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."
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.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For an interactive graphic on the unrest, click:
http://r.reuters.com/nym77r
For more stories on gold's rally: []
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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.
Silver <XAG=> fell 0.8 percent to $34.39 an ounce, shy of
Wednesday's 31-year high at $34.96.
Platinum <XPT=> eased 0.5 percent to $1,836.24 an ounce,
while palladium <XPD=> was up 0.3 percent at $818.97.
(Editing by Anthony Barker)
