Gold falls on profit-taking but geopolitical tensions eyed

By Frank Tang and Clara Denina

NEW YORK/LONDON (Reuters) - Profit-taking sent gold prices lower on Friday after they rallied the previous day on the shooting down of a passenger plane in eastern Ukraine, but traders said interest in bullion will be quick to rise again if geopolitical tensions heighten.

Gold, seen as a hedge against risk in times of uncertainty, jumped 1.5 percent on Thursday as investors bought back their bearish bets in the metal and sought shelter from further turmoil in equities after a Malaysian airliner over Ukraine was shot down.

On Friday, no concrete measures had yet been taken by world leaders even though they called for a rapid investigation of the jetliner's downing and justice for nearly 300 deaths in an incident that could mark a pivotal moment in deteriorating relations between Russia and the West.

"Gold's selling off because it doesn't seem like the situation is escalating yet," said Phillip Streible, senior commodities broker at RJ O'Brien in Chicago.

"But gold prices could definitely shoot up if geopolitical tensions rise further because of this," he said.

Analysts said bullion prices should also benefit from Israel's intensifying ground offensive into Gaza against Hamas militants who fired hundreds of rockets into Israel.

Spot gold was down 0.6 percent to $1,309.87 an ounce at 3:16 p.m. EDT (1916 GMT) after rising 1.5 percent on Thursday, its biggest gain in a month.

U.S. gold futures for August delivery settled down $7.50 at $1,309.40 an ounce, with trading volume about 10 percent below its 30-day average, preliminary Reuters data showed.

The CBOE volatility index, or the VIX, known as the "fear gauge," which measures the short-term volatility of S&P 500 stock index options, fell sharply on Friday after posting its biggest one-day gain since April 2013.

However, interest in gold options was limited and option volatility rose only slightly despite Thursday's sudden rally, said COMEX options floor trader Jonathan Jossen.

The price of gold rose as high as $1,392 in late March at the height of the conflict between Ukraine and pro-Russian forces in Crimea, but bullion's rally failed to follow through despite continued conflict in eastern Ukraine and heightened tensions in the Middle East.

Among other precious metals, platinum was down 0.6 percent at $1,483.25 an ounce, while silver fell 1.1 percent to $20.82 an ounce, having gained almost 2 percent on Thursday.

Palladium fell 0.3 percent to $878 an ounce, but remained near its highest since 2001, after the United States imposed its toughest sanctions yet on Russia, the biggest producer of the metal, over the violence in Ukraine.

3:16 PM EDT LAST/ NET PCT LOW HIGH CURRENT SETTLE CHNG CHNG VOLUS Gold AUG 1309.40 -7.50 -0.6 1305.00 1325.50 113,592US Silver SEP 20.886 -0.248 -1.2 20.780 21.315 32,970US Plat OCT 1489.90 -13.80 -0.9 1487.80 1510.00 6,826US Pall SEP 881.50 -3.60 -0.4 870.10 887.55 3,306Gold 1309.87 -7.43 -0.6 1304.70 1324.44 Silver 20.820 -0.240 -1.1 20.750 21.240Platinum 1483.25 -9.45 -0.6 1486.00 1503.00Palladium 878.00 -3.00 -0.3 874.50 885.05TOTAL MARKET VOLUME 30-D ATM VOLATILITY CURRENT 30D AVG 250D AVG CURRENT CHGUS Gold 135,682 152,523 166,430 14.15 -0.15US Silver 34,343 64,927 54,740 19.95 1.29US Platinum 6,850 14,779 12,277 14.43 0.53US Palladium 3,419 4,457 5,822 18.47 0.27

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by William Hardy, David Holmes and Peter Galloway)