* Gold gains for third day as Libya violence worsens
* Silver firm, miners upbeat on output
* Investors eye Bernanke report, U.S. ISM Manufacturing PMI
(Updates prices, adds comment)
By Amanda Cooper and Rebekah Curtis
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.
Gold has rallied strongly since uprisings in Tunisia and
Egypt unleashed a swathe of popular protests across the region,
sending oil prices to 2-1/2-year highs and raising investors'
concern about potential impacts of high energy prices on growth.
Tensions in the 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 $1,423.06 an
ounce and was up 0.7 percent at $1,419.95 an ounce by 1422 GMT.
"The likelihood that we move higher from here remains good,"
said Walter de Wet, an analyst at Standard Bank. "It's tension
in the Middle East, (and) there's some dollar weakness."
A weaker dollar attracts non-U.S. investors. []
U.S. April gold futures were up 0.9 percent at $1,422.4.
Bullion 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.
Investors also kept an eye on a semiannual report by Federal
Reserve Chairman Ben Bernanke on Tuesday, on monetary policy.
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.
"I wouldn't say there's a clear direction at the moment,"
said Simon Weeks, head of precious metals at Bank of Nova
Scotia. "The pendulum has swung back from (investors) being
optimistic about economic recovery to being somewhat more
cautious."
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 $113 a barrel on Tuesday. []
Silver <XAG=> hit fresh 31-year highs at $34.46 an ounce,
showing a 1.95 percent gain on the day, later trading at $34.35.
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 1.3 percent at $1,828 an ounce, while
palladium <XPD=> was up 2 percent at $808.73 an ounce.
"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.
(Editing by Jane Baird and Alison Birrane)
