* Gold gains for third day as Libya violence worsens
* Silver firm, miners upbeat on output
* Coming up: U.s. ISM Manufacturing PMI, Feb; 1500 GMT
(Updates prices)
By Amanda Cooper
LONDON, March 1 (Reuters) - Gold neared two-month highs on
Tuesday as escalating violence in Libya and unrest spreading
across the Middle East outweighed optimism over stronger U.S.
economic data, while silver hit fresh 31-year peaks.
The gold price has risen by nearly 8 percent since uprisings
in Tunisia and Egypt unleashed a swathe of popular protests
across the region, sending the oil price to 2-1/2-year highs and
raising concern among investors of the potential impact of
soaring energy prices on growth.
Tensions in the volatile region worsened as forces loyal to
Libyan leader Muammar Gaddafi massed near the Tunisian border on
Tuesday, while the United States said it was moving warships and
aircraft closer to Libya. []
Spot gold <XAU=> rose to a session peak at $1,421.35 an
ounce and was up 0.6 percent at $1,419.66 an ounce by 1240 GMT.
It rose 6 percent in February, its largest monthly rise since
August, when the U.S. Federal Reserve first indicated economic
growth was feeble enough to warrant a resumption in purchases of
government bonds.
"We were looking for a correction in gold in January, and
certainly I think that correction was interrupted by the
political situation in North Africa and the Middle East, and
that has been responsible for getting gold back up to $1,400,"
said Deutsche Bank analyst Daniel Brebner.
While the uncertainty over the region is proving beneficial
for gold for now, Fed Chairman Ben Bernanke's twice-yearly
testimony to the U.S. Senate Banking Committee later in the day
could be more decisive in determining the outlook for the gold
price, he said.
"The market may look at Bernanke's discussion today to get
guidance in terms of where the next move will be. If it is to
remain accommodative, then that's very good for gold. If the Fed
... talks about a hiking cycle or rising interest rates, then
that may temper enthusiasm."
U.S. April gold futures were up 0.3 percent at $1,414.70.
FED KEY
Since the Fed cut rates to 0.25 percent in response to the
global financial crisis in late 2008, the gold price has risen
70 percent, reaching a record $1,430.95 in December 2010.
A low rate environment encourages investors to buy gold as
it limits the opportunity cost, or premium relinquished for
holding a non-yield bearing asset, of owning the metal.
Soaring food and energy prices have ignited inflation in
emerging economies and have begun to raise consumer prices in
the developed world, which raises the likelihood of tighter
monetary policy, usually a negative for gold.
"There's conflicting signals out there, which is beneficial
for gold. But I wouldn't say there's a clear direction at the
moment. The pendulum has swung back from (investors) being
optimistic about economic recovery to being somewhat more
cautious," said Simon Weeks, head of precious metals at Bank of
Nova Scotia.
In a reflection of investor ambiguity on gold, holdings of
the metal dropped in the SPDR Gold Trust <GLD>, the world's
largest gold-back exchange-traded fund.
Holdings fell for a fifth consecutive month in February,
marking their worst string of declines since the creation of the
fund in 2004. []
Offsetting some of the potential negative impact from
sustained ETF outflows was the largest rise in speculative
holdings of gold futures on COMEX in February since August last
year. <0#CFTC>
The Australian Bureau of Agricultural and Resource Economics
and Sciences (ABARES) said gold prices could drop 20 percent
later this year and in 2012 as the global economy picks up and
speculators exit the market.
Adding to some of the concern about inflation, Brent crude
oil futures rose above $112 a barrel on Tuesday as the ongoing
unrest in the Middle East and North America threatened to
further reduce crude supplies. []
Silver <XAG=> hit fresh 31-year highs at $34.46 an ounce at
1258 GMT, showing a 1.95 percent gain on the day. Silver has
risen nearly 11 percent this year, shrugging off the prospect of
rising supply as industrial demand improves.
Top primary producer Fresnillo <FRES.L> said it expects a 5
percent rise in silver output in 2011 to around 44 million
ounces, while U.S.-listed Coeur d'Alene Mines <CDE.N> said on
Monday it expected production to rise 20 percent to 20 million
ounces this year. [] []
Platinum <XPT=> was up 0.7 percent at $1,817.50 an ounce,
while palladium <XPD=> was up 1.5 percent at $804.97.
(Editing by Jane Baird)
