Gold falls 1.5 percent on ECB rate talk, peace plan
NEW YORK (Reuters) - Gold fell 1.5 percent on Thursday, snapping a four-day rally to record highs on news of a Venezuelan proposal to end turmoil in Libya and as the European Central Bank warned it could soon raise interest rates.
Gold nearly halved its gains from the past four days which culminated in an all-time high $1,440.10 an ounce on Wednesday. Bullion investors took profits as oil prices slipped after Venezuela said Muammar Gaddafi had agreed to its proposal for an international commission to negotiate a peace plan in Libya, the world's 12th largest oil exporting nation.
Bullion was also pressured by ECB President Jean-Claude Trichet's statement that the central bank would exercise "strong vigilance" over inflation and that interest rate increases could come at ECB's next meeting in April, far earlier than markets expected.
"Obviously, you have the European talk about higher interest rates down the road and a stalling crude rally, which are weighing on the market now," said Frank McGhee, head precious metals trader of Integrated Brokerage Services LLC.
"You have everything that at least set us up for a day of profit taking," McGhee said.
Spot gold fell as low as $1,409.96 an ounce and was down 1.5 percent to $1,412.90 an ounce at 3:04 p.m. EST (2004 GMT). The metal fixed at $1,421.50 in London.
U.S. gold futures for April delivery settled down $21.30 an ounce at $1,416.40, with turnover of more than 200,000 lots, some 10 percent higher than its 30-day average, preliminary Reuters data showed.
Thursday marked the first time U.S. gold volume rose above 200,000 contracts since January 28.
Trichet's remarks on inflation and a possible rate hike pushed the euro sharply higher against the dollar, edging toward the psychologically important $1.40 level.
"This is the type of language that in previous rate hike cycles preceded a rate hike," said currency strategists at Action Economics.
On charts, gold has recently risen in a narrow channel, which indicates uniformity of its recent rally, said Rick Bensignor, chief market strategist of Dahlman Rose.
Bensignor said gold should find key support between $1,370 and $1,380 an ounce should prices correct further.
"Unless you think the dollar is going to bottom and do a massive turnaround, it's hard to think why gold is going to stop here," Bensignor said.
U.S. stocks shot up on lower oil prices and upbeat U.S. labor market data, which added pressure to gold.
Data showing new U.S. claims for unemployment benefits fell last week to their lowest level in more than 2-1/2 years was the latest optimistic reading to bolster hopes for an upside surprise in Friday's key payrolls report.
Gold has risen 10 percent since late January, when unrest was first reported in Tunisia. It later spilled into Egypt, Libya, Yemen, Bahrain and, most recently, Oman and Iran.
Muammar Gaddafi struck at rebels controlling a key Libyan coastal road for a second day on Thursday, but received a warning he would be held to account at The Hague for suspected crimes by his security forces.
Thursday's correction notwithstanding, the situation is still likely to underpin gold prices as analysts are skeptical of the latest news.
"I doubt a (Venezuela President Hugo) Chavez-brokered deal would have much impact from a political perspective as he has little legitimacy in the international political sphere," said Cedric Chehab, head of commodities analysis at Business Monitor, a research group.
Silver fell 1.3 percent to $34.22 an ounce after rising to a 31-year high of $34.96 on Wednesday.
Platinum slipped 1.2 percent to $1,823.99 an ounce, while palladium lost 0.8 percent at $810.22.
(Additional reporting by Amanda Cooper and Jan Harvey in London; editing by Jim Marshall)
Thousands line up to say goodbye to Nelson Mandela, whose body is lying in state in Pretoria. Slideshow