* Gold struggles for traction after dipping from record high
* Mideast violence, euro zone, soft dollar lend support
* Expectations interest rates may rise hurt sentiment
(Updates prices)
By Jan Harvey
LONDON, March 29 (Reuters) - Gold eased in Europe on Tuesday
as expectations that interest rates may rise in key countries
undermined confidence in the metal, with investors remaining
cautious after its failure to build on last week's record high.
Violence in the Middle East and euro zone debt fears were
still lending support to prices, however.
Spot gold <XAU=> was bid at $1,414.15 an ounce at 1136 GMT,
against $1,419.50 late in New York on Monday. U.S. gold futures
for April delivery <GCJ1> fell $5.10 an ounce to $1,414.80.
Last week it pushed to a record high at $1,447.40 an ounce
on the back of spreading violence in the Middle East and
resurgent fears over euro zone sovereign debt, but the impact of
those issues is now priced in.
"It does seem to be getting trickier to push convincingly
beyond previous highs," said Macquarie analyst Hayden Atkins.
"High oil prices, unrest in the Middle East and European
sovereign debt issues aren't having a decisive impact on
financial markets in general, and that is why you're not getting
the explosive increase in the gold price that we saw last year,"
he said.
"There seem to be too many things going on for a lot of
people, and positioning in that type of environment is quite
difficult."
On the foreign exchange markets, the euro rose against the
dollar on Tuesday after comments by the head of the European
Central Bank the previous day reinforced expectations for higher
interest rates. A softer dollar tends to benefit gold. []
ECB chief Jean-Claude Trichet said on Monday that the
inflation rate in the euro zone is "durably" above the European
Central Bank's target. []
RATES EYED
The prospect of rising interest rates cast a shadow over the
gold outlook. Hawkish comments from a Federal Reserve official
last week and increasing signs that the European Central Bank
could hike rates next month have taken the wind out of gold's
sails.
"We expect that the strengthening U.S. economy combined with
the end of quantitative easing by the U.S. Federal Reserve will
lead to gradually rising U.S. real interest rates in 2011," said
Goldman Sachs in a report on Tuesday.
"Should real rates return to their February levels of 1.3
percent, we would expect a slightly slower gold rally than
currently embedded in our forecasts for the second half of 2011,
which currently stand at $1,565 and $1,690 in six and 12 months,
respectively."
Investment interest in products such as precious metals
exchange-traded funds has been soft this quarter, with holdings
of the largest gold ETF, New York's SPDR Gold Trust, on track
for the biggest quarterly decline since the fund's launch.
Holdings of the largest silver ETF, the iShares Silver Trust
<SLV>, are on track for a small rise, however, recovering after
posting their biggest ever monthly outflow in January.
Oil prices fell around a dollar in a third day of declines
as expectations mounted of a relatively swift restoration of
supplies from OPEC member Libya. [] [] []
Silver <XAG=> slipped more than 1 percent, underperforming
other precious metals in its second straight session of losses,
to $36.72 an ounce from $37.12.
Platinum <XPT=> was at $1,737 an ounce against $1,745.70,
while palladium <XPD=> was at $737.50 against $742.03.
(Reporting by Jan Harvey; Editing by William Hardy)
