Gold fell early on Tuesday as tensions eased in Ukraine after pro-Russian rebels handed the flight recorder and victims' remains from a downed Malaysian passenger jet to international authorities. The dollar rose along with equities, weighing on bullion and other safe-haven assets such as US long-term bonds, after US data pointed to a light build in inflation.
The spot price of gold was down 0.4 percent at $1,306.35 an ounce by 2:50 pm EDT (1850 GMT). The most-active US gold futures contract, for August delivery, settled down 0.6 percent at $1,306.30 an ounce. Gold had jumped almost 1.4 percent last Thursday - its most in a month - as investors sought the metal as a hedge against losses in the dollar and equities after Malaysia Airlines Flight 17 was brought down in an Ukraine rebel zone.
After several tense days, a separatist leader in Ukraine handed the plane's black boxes to Malaysian experts while a train with remains of many of the 298 victims from the disaster arrived in government territory. Traders said gold prices also slipped as investors extended the profit-taking that emerged at the end of last week after six straight weeks of gains. Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 1.8 tonnes to 803.34 tonnes on Monday.
But despite some cooling in the Ukraine conflict, geopolitical worries were likely to keep gold at around $1,300, analysts said. "If it were not for the problems we are seeing, between the United States and Russia, with Europe and Ukraine caught in the middle, in the seas surrounding China, and in the Middle East, gold probably would be down around $1,240 - $1,280 at present," Jeffrey Christian, managing partner of New York-based CPM Group, told the Reuters Global Gold Forum.
"Regional conflicts like ISIS in Iraq, or Syria, or the Israeli-Palestinian situation, or the Ukraine separatists situation, all fester without a joint international effort to help resolve them. This means more problems being more difficult to resolve, which probably means that more investors will seek gold as a portfolio diversifier and safe-haven over the next several years than otherwise," Christian said.
One factor that could work against gold is sluggish demand from jewellery makers and other physical users of the precious metal, traders said. On the Shanghai Gold Exchange, local gold prices were on par with London rates, indicating muted buying. In other precious metals, palladium dipped 0.2 percent to $872.25 an ounce. Platinum was flat at $1,481.75 an ounce. Silver rose 0.1 percent to $20.92.
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