* Mideast violence lifts gold from early lows near $1,410/oz
* Expectations interest rates may rise hurt sentiment
* Gold struggles for traction after dipping from record high
(Updates prices, adds comment)
By Jan Harvey
LONDON, March 29 (Reuters) - Gold steadied near $1,420 an
ounce on Tuesday as violence in the Middle East boosted the
metal's safe-haven appeal, but investors remain cautious towards
the metal amid expectations monetary policy is set to tighten.
Spot gold <XAU=> was bid at $1,418.22 an ounce at 1444 GMT
against $1,419.50 late in New York on Monday, having earlier
fallen as low as $1,410.85. U.S. gold futures for April delivery
<GCJ1> fell $1.50 an ounce to $1,418.40.
"I think the market is beginning to believe that there will
be no QE3," said Saxo Bank senior manager Ole Hansen. "We have
geopolitical unrest, rising inflation, weaker dollar and all of
these have failed to make gold fly like last year."
St Louis Federal Reserve Bank president James Bullard said
on Tuesday the U.S. economy was strong enough to curtail the
Fed's $600 billion bond-buying program, while ECB chief
Jean-Claude Trichet said on Monday the inflation rate in the
euro zone was "durably" above the bank's target. []
Growing expectations U.S. and euro zone monetary policy may
tighten have weighed on gold prices after unrest across the
Middle East and North Africa pushed gold to a record $1,447.40
an ounce last week.
Violence is continuing to rage in Libya after months of
unrest in North Africa. Muammar Gaddafi's better armed and
organised troops reversed the westward charge of Libyan rebels
as world powers met in London to plot the country's future
without the "brother leader". []
U.S. Ambassador to the United Nations Susan Rice said on
Tuesday that the Obama administration has not ruled out arming
Libya's rebels as an option for trying to end Muammar Gaddafi's
41-year rule. []
RATES EYED
Among other commodities, oil prices turned positive on
Tuesday as Gaddafi's troops halted a rebel advance, raising
doubts among investors over how quickly the conflict in OPEC
member Libya could be resolved. []
But the prospect of tightening monetary policy is casting a
shadow over the gold outlook. Gold tends to benefit from low
real interest rates, as they reduce the opportunity cost of
holding non-interest bearing bullion.
"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.
Silver <XAG=> slipped 0.5 percent, underperforming other
precious metals in its second straight session of losses, to
$36.94 an ounce from $37.12.
Platinum <XPT=> was at $1,741.99 an ounce against $1,745.70,
while palladium <XPD=> was at $744.50 against $742.03.
(Reporting by Jan Harvey; Editing by Alison Birrane)
