Gold stalls after rally to two-month highs, palladium extends gains

By Seher Dareen

(Reuters) - Gold held near two-month highs on Thursday, buoyed by worries surrounding inflation and tensions over Ukraine, which also helped palladium extend its rally given concerns about supply of the autocatalyst metal from Russia.

Spot gold was little changed at $1,839.42 per ounce by 1320 GMT, after scaling its highest since Nov. 22 at $1,843.94. U.S. gold futures fell 0.2% to $1,839.80 .

"We're looking at a pause for breath after yesterday's gains. Those gains result from the market finally seeking what we have been expecting for a while, which is using gold as a hedge against inflation," Ricardo Evangelista, senior analyst at ActivTrades said.

Reflecting investor sentiment, holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, jumped to their highest since mid-December. [GOL/ETF]

The dollar index steadied but was subdued overall as U.S. benchmark 10-year yields retreated from two-year highs. A cheaper dollar makes gold more attractive for overseas buyers. [USD/][US/]

Growing geopolitical instability, notably Russia-Ukraine tensions, was also supporting gold, Evangelista added.

But rising interest rates remained a potential headwind for gold since that translates into higher opportunity cost of holding non-interest bearing bullion. The U.S. Federal Reserve will meet next week and is expected to tighten monetary policy faster than thought to tame inflation, a Reuters poll showed.

Elsewhere, platinum rose 2% to $1,042.70 and palladium gained 2.2% to $2,045.48 per ounce, with both having hit their highest in about two months. Palladium rallied over 7% on Wednesday, while platinum jumped over 5%.

The rally could have been related to supply concerns due to the Russia-Ukraine tensions, Commerzbank said in a note.

Potential Western sanctions on Russia, one of the biggest producers of palladium, and an export ban on the metal, which is vital for the automotive industry, could lead to a severely under-supplied market, Commerzbank said.

Silver was flat at $24.12 an ounce.

 

(Reporting by Seher Dareen and Swati Verma in Bengaluru; Editing by Emelia Sithole-Matarise and David Evans)