Gold edges above $1,410/oz on Mideast tensions

By Jan Harvey

LONDON | Mon Feb 28, 2011 10:19am EST

LONDON (Reuters) - Gold rose above $1,410 an ounce on Monday as turmoil across the Middle East boosted safe-haven buying, though the metal struggled to sustain gains as investors were spooked by its proximity to record highs.
Spot gold was bid at $1,410.50 an ounce at 1502 GMT (10:02 a.m. EST), against $1,409.15 late in New York on Friday. U.S. gold futures for April delivery rose by $1.60 an ounce to $1,410.90.
Unrest across the Middle East and North Africa, which unseated leaders in Tunisia and Egypt before spreading across Libya, Bahrain, Yemen and Oman has fueled a 6 percent rise in gold prices this month.
Prices are currently on track for their biggest one-month rise since last August, but analysts say more may be needed to take gold above its record high at $1,430.95 an ounce.
"It requires some spreading of the political turmoil and an intensification in those other countries to see gold make much bigger gains," said Mitsubishi analyst Matthew Turner.
"From a market viewpoint, gold is near its highs again. It was probably quite easy to get up to $1,400, but it will be more difficult to rise from here."
Yemen's opposition coalition said on Monday it would not join a unity government expected to be offered by President Ali Abdullah Saleh, saying it was standing with popular demands for an end to his three-decade rule.
In Oman, protesters demanding jobs and political reforms blocked roads to a main port in the north of the Gulf Arab sultanate as looters trashed a nearby supermarket, and demonstrations spread to the capital.
In Libya meanwhile, rebels downed a military aircraft as they fought a government bid to take back the country's third city, Misrata, a witness said, while foreign ministers discussed how to help them oust Muammar Gaddafi.
DOLLAR UNDER PRESSURE
A decline in the dollar, which makes commodities priced in the U.S. unit cheaper for holders of other currencies, also helped support gold.
The dollar hit a 3-1/2-month low versus a currency basket .DXY on speculation the Federal Reserve would lag other central banks in raising interest rates to counter inflation risks stoked by rallying oil prices.
Oil prices edged a touch lower on Monday but remained elevated after hitting 2-1/2 year highs last week on the back of tensions across the Middle East and North Africa.
"Higher oil prices are a double-edged sword as far as gold is concerned," said UBS in a note. "On the plus side, should elevated oil prices persist, concerns about a corresponding negative impact on global economic growth could spurn renewed interest in safe havens.
"(But) rising oil prices also contribute to higher inflation prints. This creates a difficult task for policymakers, particularly the ECB and BoE, who are debating a return to monetary policy normalization. The return of interest rate hikes will act as an anchor for gold at lower price levels."
Among other precious metals, silver was bid at $33.66 an ounce against $33.31. Prices have rallied 19 percent this month, their biggest one-month rise since May 2009.
Among other precious metals, platinum was at $1,801.49 an ounce against $1,803.50, while palladium was at $793.47 against $785.40.
(Reporting by Jan Harvey; Editing by Alison Birrane and Jane Baird)