* Markets eye Libya developments as Gadaffi vows to stay
* Risk aversion knocks stocks, lifts bonds, Swiss franc
* No cause for concern over silver supply, GFMS says
(Updates prices)
By Jan Harvey
LONDON, Feb 23 (Reuters) - Gold rose above $1,400 an ounce
in Europe on Wednesday as simmering tensions in Libya lifted
interest in the metal as a haven from risk, but gains were
limited by concerns its sharp run higher may have been overdone.
Spot gold <XAU=> was bid at $1,404.29 an ounce at 1221 GMT,
against $1,399.20 late in New York on Tuesday. U.S. gold futures
for April delivery <GCJ1> rose $3.70 an ounce to $1,404.80.
The metal hit its highest since Jan. 4 above $1,410 an ounce
on Tuesday as worries over violence in the Middle East region
stoked risk aversion, but later retreated as investors cashed in
gains in gold to cover losses on other markets.
While gold remains constrained by fears that last week's 2.4
percent rise has pushed prices into unsustainable territory,
rumbling tensions in Libya are still providing support.
"Gold certainly has seen a swift spike over the last two
weeks on the back of Middle East tensions, especially after
riots broke out in Libya," said Pradeep Unni, senior analyst at
Richcomm Global Services in Dubai.
"What is, however, surprising is the steady decline in
investment demand despite this uncertainty," he added. "This
hints that the gains over the last few weeks may succumb to
profit taking once the issues subside."
Violence flared in Libya last week as demonstrators took to
the streets to demand an end to the 41-year rule of leader
Muammar Gaddafi, after protests earlier this year toppled
leaders in Tunisia and Egypt. []
Gaddafi's increasingly desperate attempts to crush a revolt
against his four-decade rule have killed as many as 1,000 people
and split Libya, Italy's Foreign Minister said.
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See interactive factbox on Middle East unrest:
http://link.reuters.com/puk87r
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RISK AVERSION SPREADS
The wider markets showed widespread risk aversion. Stock
markets retreated in Europe after a soft session in Asia, while
industrial metals prices eased, though concerns over output from
oil-rich Libya boosted crude prices. [] [] []
Meanwhile, nominal safe havens like U.S. Treasuries, German
government bonds and the Swiss franc rose, with the Swissie at a
three-week high versus the dollar. [] [] []
The dollar index <.DXY> meanwhile fell 0.4 percent. []
But while dealers reported strong demand for investment
products like gold bars, interest in bullion-backed exchange
traded funds softened.
The world's largest gold-backed ETF, the SPDR Gold Trust
<GLD>, said holdings dropped to 1,218.243 tonnes on Tuesday from
1,223.098 tonnes a day before. []
Holdings in the world's largest silver ETF, the iShares
Silver Trust <SLV>, fell to 10,342.89 tonnes on Tuesday from
10,519.05 tonnes the previous day. []
Silver <XAG=> was at $33.27 an ounce from $33.04. The metal
has risen strongly this month on worries about tightness in the
market, but a spokesman for metals consultancy GFMS said on
Wednesday there was no need for concern over supply.
"We are expecting a reasonably robust increase (in new mine
output) this year," Paul Walker, GFMS's chief executive officer,
told Reuters in an interview. "The rise in mine output should
keep silver still in a surplus." []
Platinum <XPT=> was at $1,795.99 an ounce against $1,788.50,
while palladium <XPD=> was at $813 against $802.23.
(Reporting by Jan Harvey; Editing by Alison Birrane)
