* Brent backs off $120, sources say Saudi can boost supply
* Inflation concerns remain; scrap selling emerges
(Recasts, updates prices)
By Amanda Cooper
LONDON, Feb 24 (Reuters) - Gold was flat on Thursday after
sources said Saudi Arabia was able to boost crude output, easing
from its highest in nearly two months on concerns about
inflation after oil rose on unrest in oil-producer Libya.
Violence in Libya, Africa's third-largest producer of oil,
sent crude futures to their highest in over two years, around
$120 a barrel, a level that Deutsche Bank called a "key threat
to global growth". []
But oil prices slipped from highs after senior sources said
Saudi Arabia was willing and able to plug any oil supply gap due
to unrest in Libya. []
Spot gold <XAU=> was up 0.1 percent at $1,412.7 an ounce by
1436 GMT, off a session high of $1,417.92 and having rallied
since late January since late January when protests intensified
in Egypt against former president Hosni Mubarak.
U.S. April gold futures <GCJ1> were flat at $1,412.60.
"The major factor currently for commodities in general
including gold is the situation in Libya and fears it might
spread over to other oil producing countries in the Middle East
and North Africa," Peter Fertig, a consultant at Quantitative
Commodity Research, said.
"It is the safe haven aspect which plays a role and also the
rise of crude oil, which could translate sooner or later in
rising CPI figures."
As many as 1,000 people may have been killed in the unrest
in Libya, as forces loyal to Muammar Gaddafi launched a
counter-attack as rebels threatened the Libyan leader's grip on
power by seizing important towns near the capital.
[]
GOLD HEDGE
Investors often buy gold as a means of protecting their
portfolios against rising inflation expectations as gold rises
in line with other asset prices, as opposed to bonds where
returns are eroded, or currencies, which lose purchasing power.
Rising inflation eventually leads to rising interest rates,
which ultimately can prove negative for gold, which bears no
yield, but when inflation threatens growth, bullion can often
offer investors the hedge they need.
The unrest across North Africa and the Middle East boosted
other perceived safe-haven assets such as the Swiss franc, which
hit a record against the dollar <CHF=>.
"There is no reason why we can't break through the recent
high around $1,416 and head towards $1,420 if the unrest
continues in Libya," said Darren Heathcote, head of trading at
Investec Australia.
"Of course if it spreads even further in field or becomes
more violent, gold will benefit further as a safe haven."
Investor interest in gold has not translated into inflows
into major exchange-traded products, such as the SPDR gold trust
<GLD>, or ETF Securities' gold funds, since the protests in
Egypt in late January.
Yet investors have increased their holdings of COMEX gold
futures <0#GC:> this month and until the price broke above
$1,400 an ounce this week, dealers had reported fairly healthy
consumer buying.
The rally in the last four weeks has attracted sales of
scrap into the market, which has acted as something of a
headwind for the spot gold price, dealers said.
Silver, which is around its highest in 31 years, eased on
Thursday, in line with a decline in industrial metals.
Adding to the modest pressure on silver was a decline in
import of the metal in January by top commodity consumer China,
where it is used, among other applications, in the country's
growing solar energy sector. []
Spot silver <XAG=> was last down 1.3 percent at $33.08
having touched 31-year peaks above $34 on Tuesday.
Reflecting healthy investor interest in silver, where the
futures market shows near-term prices are now above those for
later delivery, holdings in the world's largest silver-backed
ETF, the iShares Silver Trust <SLV>, rose to one-month highs.
Platinum <XPT=> fell 0.5 percent to $1,772 an ounce, while
palladium <XPD=> was down 1.4 percent at $765.75.
(Additional reporting by Rujun Shen in Singapore; Editing by
Alison Birrane and Sue Thomas)
