Gold clings to $1,410; ETF holdings to 9-month low

By Rujun Shen

SINGAPORE | Mon Feb 28, 2011 11:00pm EST

SINGAPORE (Reuters) - Spot gold steadied around $1,410 on Tuesday as escalating unrest in Libya and the Middle East supported safe-haven demand, though holdings in the biggest gold-backed exchange-traded fund fell to the lowest level in more than nine months.

Forces loyal to Libyan leader Muammar Gaddafi were massed near the Tunisian border on Tuesday, as the United States said it was moving warships and aircrafts closer to Libya, heightening tension in the volatile region.

Spot gold was nearly flat at $1,411 an ounce by 0339 GMT. It had been moving in a narrow range of less than $4.

The most active U.S. gold futures contract edged up 0.1 percent at $1,411.90.

"There has been some scrap selling and liquidation above $1,405," said Peter Fung, head of dealing department at Wing Fung Precious Metals in Hong Kong.

"We'll probably see a price range between $1,405 and $1,415."

But even as the political turmoil in the Middle East and North Africa continued to support safe-haven demand, improved economic prospects could weigh on gold prices, traders said.

Gold prices could drop 20 percent later this year and in 2012 as the global economy picks up, as speculators exit the market, said the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES).

Holdings in the SPDR Gold Trust dipped to the lowest since mid-May last year in a sign that investors may be switching to stocks and other assets, a dealer said.

"The money from gold ETF may have gone to the stock market, which has outperformed gold recently," said a Hong Kong-based dealer.

Spot gold inched down half a percent so far this year, compared to a 5.6 percent climb in the Dow Jones industrial average .DJI.

On the macroeconomic front, Chinese manufacturing growth slowed in February to a six-month low, according to an official survey, as the government's sustained campaign to tame inflation weighed on industrial activity.

Australia's central bank decided to keep its main cash rates steady at 4.75 percent as widely expected, said it expects the global economy continue to expand.

Brent crude held steady near $112 a barrel on Tuesday as investors remained cautious about Middle East supplies even as Saudi Arabia ramped up production to cover a drop in Libyan exports.

A sustained period of higher oil prices would significantly affect developing economies but is unlikely to derail their strong recovery since the global financial crisis, a senior World bank economist said.