* Tensions flare in Libya, Suez as MEast unrest spreads
* Dollar softens after U.S. unemployment claims climb
* Silver rallies to within 10 cents of 31-year high
(Updates prices)
By Amanda Cooper and Jan Harvey
LONDON, Feb 17 (Reuters) - Gold prices extended early gains
to five-week highs on Thursday as flaring tensions in the Middle
East region added to impetus from a retreat in the dollar and
simmering concerns over rising inflation.
Its strength buoyed silver prices, which rallied to within
10 cents of the 31-year high it hit earlier this year.
Gold is set for its strongest weekly performance since the
start of the year as unrest in the region spread, boosting other
perceived safe-haven assets like the Swiss franc <CHF=>, which
rose 0.9 percent on the day and U.S. Treasuries <US10YT=RR>.
Spot gold <XAU=> rose to a five-week high at $1,384.30 an
ounce and was bid at $1,383.20 an ounce at 1633 GMT, against
$1,374.20 late in New York on Wednesday. U.S. gold futures for
April delivery <GCJ1> rose $8.90 to $1,384.00.
The metal has erased some of the decline it posted in
January, its worst-performing month since Dec. 2009, as investor
confidence in the metal's underlying strength improved.
"The market is tending to be a little on the long side at
these levels, because they are beginning to have faith," said
ANZ Bank analyst Peter Hillyard.
"The mood of the market is that an inflation story, a war
story, an Egypt story, a Bahrain story will all be bullish for
gold, because the market is looking for those at the moment."
The prospect of rising inflation, not only in areas
currently affected by the phenomenon like China and India, but
also in the United States and Europe, has become an oft-cited
reason to hold gold in recent weeks. []
The dollar declined 0.4 percent versus a currency basket
<.DXY> after data showed U.S. core consumer prices rose at their
fastest in over a year in January and new unemployment benefit
claims climbed faster than forecast last week. []
Weakness in the U.S. unit tends to lift gold's appeal as an
alternative asset and make dollar-priced commodities cheaper for
holders of other currencies.
UNREST SPREADS
The metal is also taking support from haven demand as unrest
spread across the Middle East after protests earlier in the year
unseated leaders in Tunisia and Egypt.
"Upheavals in Libya and Iranian warship threats in the Suez
Canal shifted market sentiment and pushed gold upward," said
Barclays Capital in a note.
Iran appeared intent on sending two warships through the
Suez Canal in a move that Israel has called a "provocation",
putting Egypt's new military rulers in an unwelcome diplomatic
spotlight. []
Clashes broke out in several towns in Libya after the
opposition called for a day of protests, reports and a witness
said, while supporters of Libyan leader Muammar Gaddafi rallied
in the capital. []
The World Gold Council said overall demand for gold is
likely to remain firm this year, driven by buying from India and
China, as it released a report showing consumption of the
precious metal rose to a ten-year high in 2010. []
"We continue to see the two largest markets, China and
India, driving the market," the WGC's investment research
manager Eily Ong told Reuters.
"There have been rising income levels, still-high saving
rates and we still think strong economic growth will continue to
push up gold consumption."
Silver <XAG=> rose 1.6 percent to its highest since Jan. 3
at $31.13 an ounce, and was later at $31.10 an ounce against
$30.63. Palladium <XPD=> was down 0.25 percent as $835.88, and
platinum <XPT=> rose 0.4 percent to $1,834.
(Reporting by Jan Harvey and Amanda Cooper)
