Gold rose nearly 1.5 percent early on Wednesday on safe-haven buying triggered by worries that there could be an escalation of the military conflict in Ukraine and by a weak undertone in global equities. Investors bought gold and US Treasury bonds and initially sold equities after Nato said Russia had massed about 20,000 combat-ready troops on Ukraine's border and could use the pretext of a humanitarian mission to invade, its starkest warning yet that Moscow could soon mount a ground assault against its neighbour.
In addition, Russian President Vladimir Putin signed a decree banning or limiting imports of agricultural products for one year from countries that have imposed sanctions on Russia. "It's a safe-haven, flight-to-quality day for gold because of fears in the market caused by lower European stock prices and Putin's aggressive attitude," said Bill O'Neill, partner at New Jersey-based commodities investment firm LOGIC Advisors.
Spot gold rose as much as 1.6 percent to a one-week high of $1,309.20 an ounce. It was up 1.4 percent at $1,305.51 an ounce at 11:53 am EDT (1553 GMT). Wednesday's rally sent gold prices above the 50-day moving average near $1,295 an ounce. In the previous session, the yellow metal turned higher after it held its 200-day moving average at above $1,280.
US COMEX gold futures for December delivery were up $21.70 at $1,307 an ounce. European shares ended broadly lower on worries that turmoil in Ukraine and sanctions against Russia could slow global growth. US stocks opened lower but later rebounded following the previous session's sharp drop. Bouts of international political tension, mostly in Ukraine and the Middle East, which have reduced investors' appetite for risk, have helped drive gold's 8 percent gain year to date.
RBC said in a note that buying below $1,300 in gold proved attractive as most funds are under invested in it in the second half of the year. Bullion investors will continue to monitor US data releases after last week's mixed readings showing second-quarter gross domestic product rebounded sharply but jobs growth in July slowed. The physical markets have failed to provide support to prices recently due to the seasonally quiet summer period.
Premiums in top buyer China have been stuck at $2-$3 an ounce and demand is much weaker than last year, dealers said. Among other precious metals, silver rose 1.5 percent to $19.99 an ounce, rebounding from its previous session's seven-week low. Platinum rose 0.7 percent to $1,458 an ounce, while palladium inched down 0.1 percent to $843.30 an ounce.
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