Gold safety sought, Mideast unrest, quake damage rise

NEW YORK/LONDON Fri Mar 11, 2011 2:02pm EST

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NEW YORK/LONDON (Reuters) - Gold turned higher on Friday after the dollar weakened against the euro and as investors sought the precious metal's safety after Japan's earthquake and with Middle East violence rising heading into the weekend.

A major earthquake in Japan proved a double-edged sword for gold prices. While investors wanted a tangible asset amid the chaos wreaked by the worst earthquake in Japan, the disaster also hit oil prices, which lessened the need for gold as a hedge against inflation.

The massive quake pushed U.S. crude prices below $100 a barrel after a 10-meter tsunami shut down dozens of plants in the world's third-largest oil consumer. <O/R>

But, once the euro extended gains against the U.S. dollar in a short-squeeze play <USD/>, precious metals investors rushed back in the market to assure they were not left behind if prices should continue climbing over the weekend.

Spot gold rose to $1,424.05 an ounce by 1:43 p.m. EST, up from $1,412.59 late in New York on Thursday.

"With the weakness in the dollar now and a lot of the anxiety going into the weekend, I think people want to hold something tangible in their portfolio," said Senior Market Strategist Adam Klopfenstein at Lind-Waldock in Chicago.

He added that the flare ups in North Africa and the Middle East investors "are looking to precious metals for that anxiety premium, fearing that if they're not long (gold) now they would have to pay a significantly higher price to buy it on Monday."

The biggest earthquake to hit Japan since records began 140 years ago struck the northeast coast, triggering a tsunami that swept away everything in its path. Latest, estimates the death toll to exceed 1,000 people.

"The earthquake will act as a blow to (Japan's) growth in the short term, because it will be a drag on the economy," said Robin Bhar, an analyst at Credit Agricole Bhar added.

Also keeping markets nervy, police flooded the streets of the Saudi capital on Friday to deter a planned demonstrations inspired by pan-Arab revolt, but a small Shi'ite protest was reported in the country's oil-producing east.

Meanwhile, in Libya forces loyal to leader Muammar Gaddafi intensified a counter-offensive against insurgents.

But the metal was down about $30 from a lifetime high of $1,444.40 a troy ounce on Monday.

Prices at 12:56 p.m. EST

(Reporting by Carole Vaporean; Editing by Lisa Shumaker)

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