Gold holds steady as Ukraine worry stokes demand

Singapore (Aug 13)   Gold was well supported above $1,300/oz on Wednesday as weak investor morale in Germany and fear over the economic effect on Europe of the crisis in Ukraine prompted investors to seek safety in bullion.

The metal benefited from safe-haven bids as Asian shares struggled after Wall Street snapped a two-day rally, with the crisis in Ukraine sapping investor confidence.

Spot gold was steady at $1,309.01/oz at 3.20am GMT, after hitting a three-week high last Thursday.

"Gold prices will be quite stable in the near term with the downside limited due to geopolitical tension," Heraeus Metals general manager Dick Poon said in Hong Kong.

"What is worrying is that physical demand has been very slow this year. We might see some slight pick-up in demand towards the end of the year," he said.

Gold has gained almost 9% this year, hurting demand for jewellery, bars and coins in top consuming region Asia.

Record purchases last year, when prices plunged 28%, and a strong dollar have also dulled gold’s appeal. A lack of robust physical demand could make it hard to sustain rallies and may also mean there is little support if prices drop.

For now, gold is drawing support from a survey on Tuesday showing German analyst and investor morale plunged in August to its lowest level in more than one-and-a-half years as the crisis in Ukraine took its toll, suggesting that Europe’s largest economy is running out of steam.

A Russian convoy of trucks carrying tonnes of humanitarian aid left on Tuesday for eastern Ukraine, as Kiev and Western governments warned Moscow against any attempt to turn the operation into a military intervention by stealth.

Tension in the Middle East also boosted gold’s appeal as an alternative investment. The US has sent about 130 additional military personnel to Iraq, as Washington seeks to help Iraq contain the threat posed by hardline militants from the Islamic State.

Talks to end a month-long war between Israel and Gaza militants were "difficult", Palestinian delegates said, while Israeli officials said no progress had been made so far and fighting could soon resume.