Gold rises as Japanese quake fuels risk aversion

Gold rose in Europe on Monday, recovering some of last week's 1% losses, as the impact of an earthquake in Japan added to upward pressure on the metal, driving prices towards recent record highs.

Spot gold was bid at USD 1,427.51 an ounce at 1212 GMT against USD 1,417.70 late in New York on Friday, within sight of the record USD 1,444.40 it hit last week. US gold futures for April delivery rose USD 6.00 to USD 1,427.80.

Oil prices tumbled, stock markets fell and the yen retreated from record highs against the dollar after the Bank of Japan announced a series of policy easing measures to shore up the economy in the wake of the disaster.

Thousands in Japan have been killed or displaced by the earthquake on Friday and subsequent tsunami.

"Japan is another risk element in a plethora of events which have been important in the minds of investors in the past quarter," said Deutsche Bank analyst Daniel Brebner.

"You have the Middle East/North Africa situation, the peripheral euro zone debt issues which seem to be re-emerging, there are questions with respect to China raising interest rates near term, and there are municipal issues in the United States, particularly on debt."

"This is all creating an environment where there appears to be support for precious metals, and gold in particular."

Rescue workers combed the region north of Tokyo for survivors and struggled to care for millions of people without power and water in what Prime Minister Naoto Kan has dubbed his country's worst crisis since World War Two.

Infrastructure was crippled across much of the northeast, cost estimates of the disaster leapt to as much as USD 170 billion and analysts said the economy may return to recession.

Premiums for gold bars in Tokyo jumped to their highest since February at USD 1 an ounce versus spot London prices, from zero last week, dealers said.

Crisis point

"This new crisis adds to the geopolitical/oil crisis already in the background of global markets," said Societe Generale in a note. "This event may contribute to rising fears of inflation, and may reinforce central banks dilemma, between policy tightening and a wait-and-see attitude."

"No doubt in our minds this will reinforce the Fed's path to stay with their zero rate policy for some time in spite of the ECB," it added.

Elsewhere unrest in the Middle East and North Africa continued to spread, with a Saudi source saying 1,000 Saudi soldiers have entered the island state of Bahrain after protesters there took to the streets.

As Libyan leader Muammar Gaddafi's troops battled rebel fighters for control of the strategic oil town of Brega, France stepped up efforts to persuade world powers to impose a no-fly zone over the country.

Violence which has spread from Egypt and Tunisia across the Middle East this year was a major factor driving gold to record highs, and precipitated a spike in oil prices.

In Europe, analysts said they saw little reaction in the gold price from this weekend's agreement among European leaders to strengthen the euro zone bailout fund, a move designed to address the bloc's year-long debt crisis.

"From gold's perspective, Saturday's agreement represents a positive surprise that should help the euro but may in initial assessment present less immediate need for additional gold long exposure," said UBS in a note.

Among other precious metals, silver was bid at USD 36.12 an ounce versus USD 35.83, platinum at USD 1,760.50 an ounce against USD 1,778.50 and palladium at USD 754.97 against USD 757.