Gold And Oil Drop As Libya Peace Plan Proposed (GLD)

Gold and oil prices dropped Thursday on news that a peace deal could be brokered in Libya. Venezuelan President Hugo Chavez is said to be constructing a peace plan that could bring calm to Libya, which has seen fierce fighting among rebel forces as well as forces loyal to Muammar Qaddafi. Chavez, a close friend of Muammar Qaddafi, suggested that a commission from Latin America, Europe, and the Middle East might form to negotiate a resolution to the Libyan crisis. The crisis has driven oil prices to levels that, if stabilized, could slow global economic recovery, according to Reuters. Qaddafi, whose regime has long been in control of Libya, has mounted offensives against rebel-controlled towns and cities, bombing oil export hubs in Libya's east. A warplane bombed the oil terminal town of Brega, witnesses say. Brent crude oil fell to $113.09 in reaction to the proposal but later rose past $115 on reports that fighting continued. Analysts suggested that the Chavez comments created an opportunity for investors to adjust their positions in oil. Tim Riddell, head of technical analysis at ANZ in Singapore, said that "the fact that markets have been so volatile and without having concrete evidence of any material shift in the unrest in the Arab world suggests to me that we are at best consolidating." Spot gold was down 0.2 percent to $1,432.30 an ounce after hitting a record high of $1,440.10 on Wednesday. The price of spot gold has risen more than 10 percent in the six weeks since unrest in the Arab world spread to Libya, Yemen, Bahrain, Oman, and Iran. Tom Kendall, analyst at Credit Suisse, remarked that "The Middle East has certainly been a big factor for gold over the last few weeks. If the situation deteriorates, say in some of Libya's neighbors or if we saw more widespread protests in places like Bahrain or Saudi Arabia, then for sure you'd see another reaction in the energy markets and in gold." Secretary-General Amr Moussa of the Arab League commented that the Chavez plan of multilateral diplomacy was "under consideration." Moussa told Reuters that the Arab League had consulted several leaders about Chavez's plan. If the peace plan is successful, profit-taking may result for investors. Analyst Ong Yi Ling of Phillip Futures commented that "if some sort of resolution is achieved for Libya, it will certainly affect gold – investors will take profit and adjust their long positions." A major gold exchange-traded fund GLD traded over 1% lower than yesterday's price levels in pre-market trading today.