Gold rises on concerns over Ukraine, Russia stand-off

~~London (Aug 12) - Gold firmed on Tuesday as signs emerged that the stand-off between Russia and Ukraine was hurting confidence in the euro zone economy and on fears a Russian aid convoy heading to Ukraine could further stoke tensions.

Anxieties over the Ukraine crisis and how this might impact future business hit economic sentiment in Germany, the ZEW think-tank said on Tuesday as it reported a fall in investor morale to its lowest level since December 2012.

That helped push the euro lower, while boosting German Bund futures.

Spot gold was up 0.3 percent at $1,311.50 an ounce at 1134 GMT, while U.S. gold futures for December delivery were up $2.30 an ounce at $1,312.80.

Russia said a convoy of 280 trucks had left for Ukraine on Tuesday carrying humanitarian aid, amid Western warnings against using help as a pretext for an invasion.

"The market is range-bound below last week's highs, consolidating with some support from the ongoing geopolitical concerns over Ukraine and Iraq," Andrey Kryuchenkov, an analyst at VTB Capital, said.

"The range is still quite narrow and the stronger greenback will limit the upside, also given relatively weak physical demand at the moment," he added. "The market will be monitoring developments in Ukraine as Russia sends an aid convoy."

The dollar index rose 0.2 percent on Tuesday as the euro came under pressure from the weak ZEW data.

Gold has gained about 9 percent this year, largely on tensions between the West and Russia over Ukraine and violence in the Middle East. The metal is seen as an alternative investment to riskier assets such as equities.

The United States will consider additional military, economic and political assistance to Iraq once a new inclusive government is formed, U.S. Secretary of State John Kerry said on Tuesday.

PHYSICAL DEMAND SLUGGISH

Other than international political factors, gold has struggled to draw support from elsewhere.

Physical demand in top consuming region Asia has been sluggish after a record year in 2013, while investors have been cutting positions in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund.

The fund reported a 5.36 tonne drop in its holdings last week, its largest outflow since early May.

Global economic data has also been strong, fuelling expectations that the U.S. Federal Reserve will raise interest rates sooner rather than later, increasing the opportunity cost of holding non-yielding bullion.

Among other precious metals, silver was up 0.3 percent at $20.06 an ounce, while spot platinum was up 0.1 percent at $1,466.50 an ounce and spot palladium was up 0.3 percent at $876.50 an ounce.

Palladium, which hit 13-1/2 year highs last month, is close to its most expensive level by comparison with platinum since mid-2002.

"In ETFs, the preference for palladium versus platinum is clearer than ever this month," UBS said in a note. "After both metals consistently enjoyed gains in ETF holdings over the last several months - albeit at a different pace - flows have diverged so far in August. Palladium ETFs are up by 6,000 ounces month-to-date while platinum ETFs are down by 10,000 ounces."

Source: Reuters