Gold hit three-month highs on Tuesday as escalating violence in Libya and unrest spreading across the Middle East boosted the metal's appeal as a safe-haven from risk, 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 Libyan leader Muammar Gaddafi despatched forces to a western border area in defiance of Western military and economic pressure. Spot gold rose to a session peak at $1,423.65 an ounce - its highest since Dec. 7 when it hit a record high of $1,430.95. The metal was up 0.8 percent at $1,421.95 an ounce by 1533 GMT from $1,410.85 late in New York on Monday.
"What we're seeing in Libya, the region as a whole, makes people want to hold gold," said Robin Bhar, an analyst at Credit Agricole, adding the metal could hit a new peak "as soon as this week." US April gold futures were up 0.9 percent at $1,422.7. Bullion rose 6 percent in February, its largest monthly rise since August, when the US Federal Reserve first indicated economic growth was feeble enough to warrant a resumption in purchases of government bonds.
"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." 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. 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.
Silver hit fresh 31-year highs at $34.47 an ounce, later trading at $34.31. Silver has risen about 11 percent this year, shrugging off the prospect of rising supply as industrial demand improves. Top primary producer Fresnillo said it expects a 5 percent rise in silver output in 2011 to around 44 million ounces, while US-listed Coeur d'Alene Mines said on Monday it expected production to rise 20 percent to 20 million ounces this year. Platinum was up 1.1 percent at $1,825.5 an ounce, while palladium was up 1.4 percent at $805.58 an ounce.