Gold rises as dollar drops, Ukraine tensions rise

By Frank Tang and Clara Denina

NEW YORK/LONDON (Reuters) - Gold rose 1 percent on Tuesday on a sharply lower dollar and as renewed tensions between the United States and Russia over Ukraine burnished bullion's safe-haven appeal.

The metal was also underpinned by official-sector buying after Iraq's central bank said it might buy more gold in the next few months, having bought 60 tonnes over the past two.

Bullion prices have sharply pulled back from a six-month high near $1,400 an ounce in mid-March as geopolitical tensions eased after Russia officials said the country had no intention to invade other parts of Ukraine outside of Crimea.

On Tuesday, U.S. Secretary of State John Kerry accused Russian agents and special forces of stirring separatist unrest in eastern Ukraine, saying Moscow could be trying to prepare for military action as it had in Crimea.

"The unrest in the Ukraine and the escalating rhetoric from the U.S. is creating fear of an armed conflict, so safe-haven demand is definitely driving up gold prices today," said Miguel Perez-Santalla, vice president of online precious metals exchange BullionVault.

Spot gold was up 1 percent at $1,308.75 an ounce by 3 p.m. EDT (1900 GMT), having reached a two-week high of $1,314.43 in earlier trade.

U.S. COMEX gold futures for June delivery settled up$10.80 at $1,309.10 an ounce, with trading volume about 40 percent below its 30-day average, preliminary Reuters data showed.

Technical issues had shut down contracts on CME Group's Globex electronic trading system on Tuesday afternoon with primarily agricultural and grains contracts affected and no impact on oil or metals.

Bullion also received a boost as the dollar index fell 0.6 percent against a basket of major currencies.

Ukraine has launched what it described as an "anti-terrorist" operation in the eastern city of Kharkiv and said about 70 separatists had been arrested for seizing the regional administration building.

Gold is usually seen as an insurance against risk in times of economic uncertainty or global political troubles.

The next market focus will be the release on Wednesday of U.S. Federal Reserve minutes for the March FOMC meeting.

The rise in bullion comes despite subdued demand in top buyer China, where prices have been at a discount for more than a month. Chinese gold prices have been at a discount to spot prices since early March, leading to lower imports.

Among other precious metals, silver rose 0.9 percent to $19.99 an ounce, while platinum was up 1.1 percent at $1,437.25 an ounce and palladium gained 1.7 percent to $774.10 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore; editing by Jane Baird, David Evans, Tom Brown and Meredith Mazzilli)