Gold jumped to a three-week high on Monday as mounting tensions in Ukraine curbed investor appetite for risk, boosting bullion's appeal as an insurance asset, while palladium prices rallied to a 2-1/2 year peak. The autocatalyst metal hit its highest since August 2011 at $815.70 an ounce on growing fears that supply would suffer from fresh US sanctions on top producer Russia, as well as prolonged labour strikes in No 2 miner South Africa.
Pro-Russian separatists on Monday ignored an ultimatum to leave occupied government buildings in eastern Ukraine while another group of rebels attacked a police headquarters as a threatened military offensive by government forces failed to materialise. Spot gold was up 0.6 percent at $1,325.26 an ounce at 1415 GMT, having earlier touched its highest since March 24 at $1,329.70. Gold futures for June delivery were up 0.5 percent at $1,325.70 an ounce.
-- Palladium above $800/oz on supply sanctions fears
"The gains are a result of uncertainty over the situation in Ukraine, and warnings by Nato that Russia may invade Ukraine. That's now having an impact on the gold market," Peter Fertig, a consultant at Quantitative Commodity Research, said. "There is a general risk in this conflict that things might get hotter," he said. Relations between Russia and the West are at their worst since the Cold War, after Moscow annexed Crimea from Ukraine, saying the Russian population there was under threat.
The United States is prepared to step up sanctions against Moscow if pro-Russian military actions in eastern Ukraine continue, a senior US envoy said, with the sanctions set to target, mining, banking and energy among others. European shares extended losses on Monday, with a major index slipping to its lowest level in three weeks, as fresh tension in Ukraine prompted investors to shun cyclical sectors.
Palladium was up 1.2 percent at $810.10 an ounce, on course for its fifth session of gains. The autocatalyst metal has outperformed other precious metals this year, rising 14 percent. It has also been supported by fears of supply, growing demand in the auto sector and buying from two newly-launched exchange-traded funds in Johannesburg.
Gold has built up support over the past week after the US Federal Reserve's March meeting minutes showed officials were not keen on increasing interest rates straight after unwinding bond purchases, as the markets had feared. But an improvement in US economic reports left investors still unconvinced that the rally in gold could continue, analysts said.
Prices briefly pared gains on Monday after data showed US retail sales recorded their largest gain in 1-1/2 years in March, in the latest sign the economy was emerging from its weather-induced slumber and on track to accelerate in the second quarter. That sent US stocks higher. "We continue to stand by our year-end gold price target of $1,050 an ounce," Goldman Sachs said in a note. "More broadly, we believe that with tapering of the Fed's QE, US economic releases are back to being a key driving force behind gold prices."
Implying underlying investor bearishness and pessimism over the longer-term outlook, outflows continued from SPDR Gold Trust , the world's largest gold-backed exchange-traded fund. Holdings in the fund fell 1.80 tonnes to 804.42 tonnes on Friday. Buying in the physical markets was still thin with Chinese prices trading at a discount to spot gold. Among other precious metals, platinum gained 0.8 percent to its highest in nearly a month at $1,464.50 as labour strikes continued in South Africa. Silver was flat at $19.96 an ounce.
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