Gold gains as Ukraine tensions boost safe-haven appeal

  • Markets eye Fed's two-day policy meet starting Tuesday
  • Dollar hits 2-week high
  • Silver, platinum retreat; palladium bounces

Jan 24 (Reuters) - Gold advanced on Monday as a selloff in Wall Street driven by geopolitical tensions over Ukraine bolstered its safe-haven appeal, while investors prepared for the Federal Reserve's rate hike decision.

Spot gold rose 0.4% to $1,840.16 per ounce by 14:39 p.m. EST (1939 GMT). U.S. gold futures settled up 0.5% at $1,841.70.

NATO said it was putting forces on standby in eastern Europe in response to Russia's military build-up at Ukraine's borders. read more

"The Ukraine story is positive for gold and the Fed policy will eventually evolve into a little bit more conservative tapering since the Fed still believes a lot of this is going to be transitory," said Ed Moya, senior market analyst at brokerage OANDA.

The selloff on Wall Street worsened on the Ukraine-Russia tensions and expectations that the Fed would tighten monetary policy at a much faster pace to tame high inflation. read more

But CMC Markets UK chief market analyst Michael Hewson said the Fed was unlikely to have a big impact on gold at present "because the markets are more concerned about what's going on in eastern Europe," especially considering a March interest rate hike has been priced in.

Gold also seemed to shake off, to some extent, pressure from inflows into rival safe-haven dollar .

But while gold is considered a hedge against inflation and geopolitical risks, interest rate hikes would raise the opportunity cost of holding non-yielding bullion.

"Assuming that the current wave of risk aversion ebbs away eventually as the Fed addresses these fears, and barring a deterioration of the economic outlook, we thus believe that the gold and silver markets are again experiencing a temporary but no lasting rebound," Julius Baer analyst Carsten Menke said.

Spot silver dropped 1.9% to $23.78 an ounce and platinum slipped 1.1% to $1,017.81, while palladium rose 2% to $2,149.35.

Reporting by Kavya Guduru in Bengaluru Editing by Paul Simao, Krishna Chandra Eluri and Vinay Dwivedi

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