* Inflation fears boost gold
* High prices trigger scrap selling in Asia
* Coming up: U.S. unemployment claims; 1330 GMT
By Amanda Cooper
LONDON, Feb 24 (Reuters) - Gold held at seven-week highs on
Thursday, driven by the escalating violence in the Middle East
that has propelled oil prices to 2-1/2 year highs and heightened
investor fears of an inflationary shock to the global economy.
As many as 1,000 people may have been killed in the unrest
in Libya, where on Wednesday, thousands celebrated as the east
broke free of the control of Mummar Gaddafi, who has vowed to
crush the revolt. []
Escalating violence in Libya, Africa's third-largest
producer of oil, sent crude futures to their highest in over two
years, around $120 a barrel, a level which Deutsche Bank called
a "key threat to global growth."
Spot gold <XAU=> was up 0.3 percent at $1,414.45 an ounce by
1005 GMT, having risen by almost 8 percent since Jan. 28, when
the Egyptian army rolled into Cairo as protesters demanded that
former president Hosni Mubarak step down.
U.S. April gold futures <GCJ1> were up 0.1 percent at
$1,415.80 an ounce.
"The support we've seen for gold, given what is happening in
the Middle East, is obviously to do with the political issues,
but I think it's got more to do with the rising inflation
expectations on the back of the rapidly increasing oil price,"
said Standard Bank analyst Walter de Wet.
"Given that we've got negative real interest rates once
again and higher oil prices ... we think there's still a couple
of bucks in there," he said, of gold's potential to gain
further.
GOLD HEDGE
Investors often buy gold as a means of protecting their
portfolios against rising inflation expectations as gold rises
in line with other asset prices, as opposed to bonds where
returns are eroded or currencies, which lose purchasing power.
Rising inflation eventually leads to rising interest rates,
which ultimately can prove negative for gold, which bears no
yield, but when inflation threatens growth, bullion can often
offer investors the hedge they need.
Brent crude futures hit their highest since August 2008,
fuelled by concern that the bloodshed in Libya that has cut more
than a quarter of its oil output could spread to other producers
including top exporter Saudi Arabia. []
Tension over the unrest across North Africa and the Middle
East boosted other perceived safe-haven assets such as the Swiss
franc, which hit a record against the dollar <CHF=> or Treasury
note futures <TYv1>, which hit their highest since Feb. 2.
"There is no reason why we can't break through the recent
high around $1,416 and head towards $1,420 if the unrest
continues in Libya," said Darren Heathcote, head of trading at
Investec Australia.
"Of course if it spreads even further in field or becomes
more violent, gold will benefit further as a safe haven."
Investor interest in gold has not translated into inflows
into major exchange-traded products, such as the SPDR gold trust
<GLD>, or ETF Securities' gold funds, since the late January,
when protests intensified in Egypt against the 30-year rule of
former president Hosni Mubarak.
Yet investors have increased their holdings of COMEX gold
futures <0#GC:> this month and until the price broke above
$1,400 an ounce this week, dealers had reported fairly healthy
consumer buying.
The 5.6 percent price rise in the last four weeks has
attracted sales of scrap into the market, which has acted a
something of a headwind for the spot gold price, dealers said.
Silver, which is around its highest in 31 years, eased on
Thursday, in line with a decline in industrial metals.
Adding to the modest pressure on silver was a decline in
import of the metal in January by top commodity consumer China,
where it is used, among other applications, in the country's
growing solar energy sector. []
Spot silver <XAG=> was last down 0.5 percent at $33.37,
having touched 31-year peaks above $34 on Tuesday.
Reflecting healthy investor interest in silver, where the
futures market shows near-term prices are now above those for
later delivery, holdings in the world's largest silver-backed
ETF, the iShares Silver Trust <SLV>, rose to one-month highs.
Platinum <XPT=> fell 0.8 percent to $1,767.49 an ounce,
while palladium <XPD=> was down 1.7 percent at $762.99.
(Additional reporting by Rujun Shen in Singapore; Editing by
Alison Birrane)
