London - Gold steadied above $1,325 an ounce on Tuesday as some buyers cashed in gains after the metal's earlier rally to three-month highs, but prices remained supported by dollar weakness and unrest in Ukraine and the Middle East.
Prices rose nearly 1 percent on Monday after mixed economic data prompted a drop in the dollar index to seven-week lows, and as geopolitical tensions flared.
The metal extended gains in Asian trade to its highest since March 24 at $1,332.10 an ounce.
It failed to maintain that level, however.
Spot gold had eased to $1.326.40 by 11:54 SA time, down 0.1 percent, while US gold futures for August delivery were up $5.60 an ounce at $1,327.60.
“The move today above $1,331 probably triggered a bit of initial profit taking,” Saxo Bank's head of commodities research Ole Hansen said.
“If we can hold $1,321 today and close above $1,331 I think it could open the road towards a test of $1,370 - a weaker dollar, the end of the ceasefire in Ukraine, tensions in Israel and rising ETF holdings have all provided some support.”
The dollar index languished near seven-month lows, disappointing some analysts who had expected the currency to be on the verge of a push higher, given the prospect of rises in US interest rates sometime next year.
Bets that record-low interest rates will remain in place for some time yet and upbeat Chinese data lifted European and Asian stocks on Tuesday.
Geopolitical tensions in Ukraine and the Middle East also supported gold.
Iraq's new parliament convened, under pressure to name a unity government to stop the country splitting apart after an onslaught by Sunni militants who have declared a “caliphate” to rule all the world's Muslims.
Ukrainian government forces launched air strikes and artillery assaults on pro-Russian separatists in eastern regions on Tuesday, a military spokesman said, after President Petro Poroshenko said he would not renew a ceasefire.
The improving sentiment towards bullion was reflected in a 5.7 tonne inflow into the world's largest gold exchange-traded fund, New York's SPDR Gold Shares, the biggest one-day change it has reported in its holdings since March 10.
That has taken the fund's holdings to their highest since late April at 790.7 tonnes, after they fell to their lowest since late 2008 in May at 776.9 tonnes.
“Gold's strength over the past 24 hours could partly be explained by chunky ETF buying yesterday,” Swiss bank UBS said in a note on Tuesday.
“The significant change in ETF flows this year compared to last year is a key factor that is helping gold - that the aggressive ETF selling of 2013 has not made a comeback has provided ongoing support.”
In the physical markets, however, buyers were put off by the recent price increase.
In top consumer China, local prices fell to a discount of about $1 an ounce to global prices on Tuesday from being on par in the previous session, in a sign of weak demand.
Platinum group metals were steady, following an end to a crippling five-month strike in South African mines last week.
South Africa's Anglo American Platinum said on Monday it was reviewing options for its Rustenburg operations, which were hit by the strike.
Spot platinum was up 0.4 percent at $1,482.90 an ounce, while spot palladium was up 0.4 percent at $843.75 an ounce.
Silver was up 0.6 percent at $21.09 an ounce. - Reuters