* Markets eye developments at Japan nuclear plant
* Violence sweeps Libya, Bahrain
* Platinum extends losses on fears over Japanese demand
(Updates prices)
By Jan Harvey
LONDON, March 16 (Reuters) - Gold firmed in Europe on
Wednesday as investors took advantage of the previous day's 2
percent price drop to buy the metal, and as the extreme risk
aversion that prompted a flight to liquidity on Tuesday eased.
Spot gold <XAU=> was bid at $1,402.85 an ounce at 1218 GMT,
against $1,393.95 late in New York on Tuesday, while U.S. gold
futures for April delivery <GCJ1> rose $10.70 to $1,403.50.
Prices fell 2.3 percent on Tuesday in their biggest one-day
drop since January. They have since steadied as markets await
news from Japan, where experts are working to avert a meltdown
at an earthquake-hit nuclear power plant. []
"Gold may recover and stabilise, but there could be more
downward pressure," said Quantitative Commodity Research
consultant Peter Fertig. "It all depends on how tactical people
are in managing the situation at the Fukushima nuclear power
plant.
"It is currently all eyes on Japan, but also have an eye on
the situation in the Middle East, which has been eclipsed by the
developments in Japan," he added.
Unrest that swept the Middle East and North Africa earlier
this year, a key factor pushing gold to a record $1,444.40 an
ounce last week, is continuing to simmer.
The Libyan army closed in on the opposition bastion of
Benghazi on Wednesday, while in Bahrain forces fired tear gas in
a crackdown on protesters. [] []
TWIN SHOCKS
"The twin shocks of Middle Eastern political uprisings and
the largest earthquake ever to hit Japan have increased downside
risks to global growth and metals prices in the short term,"
said Barclays Capital in a note.
"Until there is more clarity on these events and how
policymakers will respond to inflationary pressures, prices of
growth-sensitive assets... will likely struggle, while safe
havens, such as gold, should outperform."
Gold normally gains when investors become nervous but tends
to fall when risk aversion becomes extreme, if they are forced
to sell the metal to cover losses on other markets or seek the
greater liquidity of cash.
The dollar was supported by ongoing uncertainty over Japan's
earthquake and political turmoil in the Middle East and North
Africa, while the euro <EUR=> slipped after Moody's downgraded
Portugal's sovereign rating. [] []
Japanese stocks rebounded on Wednesday, lifting equities
elsewhere, although European shares came under pressure from the
Moody's downgrade. []
Interest in gold exchange-traded funds remained lacklustre,
with holdings of the largest, New York's SPDR Gold Trust <GLD>,
edging down by another 0.9 tonnes on Tuesday to a 10-month low,
continuing a trend seen throughout this year. []
Holdings of the U.S. based palladium exchange-traded product
declined by 4.3 percent on Tuesday, meanwhile. []
Platinum and palladium prices also recovered on Wednesday,
but buyers remain nervous on fears the earthquake in Japan could
hurt demand for the metals used in autocatalysts.
In 2001 Japan accounted for 15 percent of platinum demand
and 16 percent of palladium consumption, Johnson Matthey said.
"The shortfall in Japanese auto production cannot be fully
made up by outside producers because of parts and other supply
chain issues," said HSBC analyst James Steel in a note. "Until
vehicle production is restored in Japan, it is unclear how much
PGM demand may be lost."
"A likely drop in platinum jewelry demand may also impact
platinum consumption," he added. "Japan is the second-largest
platinum jewelry market in the world after China."
Platinum <XPT=> was at $1,719.24 an ounce against $1,700,
while palladium <XPD=> was at $715.97 against $704.50. Silver
<XAG=> was bid at $34.30 an ounce against $34.29.
(Reporting by Jan Harvey; editing by Anthony Barker)
