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Explainer: Why gold prices are up near 8-month high

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Explainer: Why gold prices are up near 8-month high

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The possibility of war in Ukraine, kept gold prices on the boil. The yellow metal, on Thursday, traded near the eight-month high touched earlier this week. On the MCX, gold April futures contract was trading at Rs 49,840, a rise of 0.45 percent, at 12.40 pm on Thursday.

Explainer: Why gold prices are up near 8-month high

Gold prices on Thursday hovered near the eight-month high touched earlier this week as the US dollar and Treasury yields dipped and demand for the safe haven metal rose following reports of a conflict in eastern Ukraine.

Earlier this week, MCX gold prices climbed to a 13-month high, breaching the Rs 50,000 mark.

On the MCX, the gold April futures contract was trading a little shy of the Rs 50,000 mark, at Rs 49,840, a rise of 0.45 percent, at 12.40 pm on Thursday.

"We are expecting it may test Rs 49,900 to Rs 50,000 and $1,875 to $1,880 today," Anuj Gupta, VP Research at IIFL Securities, told CNBC-TV18.

Global metal prices

Spot gold prices were up 0.4 percent at $1,876.41 per ounce in the morning, while US gold futures rose 0.4 percent to $1,878.40, Reuters reported. On Tuesday, bullion had hit its highest level since June at $1,879.48.

Meanwhile, spot silver remained steady at $23.54 per ounce, but platinum prices fell 0.5 percent to $1,056.53 after it touched a three-month high in the previous session. Palladium rose 0.2 percent to $2,284.19.

Reasons for the jump

Gold prices rose on Wednesday following news from NATO and the US that Russia was increasing its troops in the border areas of Ukraine. Russian-backed rebels in eastern Ukraine also accused the government forces of targeting them and opening fire on their territory on Thursday, a claim that the government has denied.

News relating to Russia and Ukraine impact prices as the market is sensitive to geopolitics news, Nicholas Frappell, a global general manager at ABC Bullion, told Reuters.

Minutes of the US Federal Reserve’s dovish meeting last month hinted that the central bank would not be as aggressive as feared in its tightening policy. This led to a decline in the US dollar and US Treasury yields fell to below 2 percent, which in turn made gold more attractive to overseas buyers.

Unless the geopolitical tensions ease, gold will remain range-bound between $1,845 and $1,880, Reuters quoted Brian Lan, managing director at dealer GoldSilver Central, as saying.

Even if the Fed raised interest rates, real interest rates would still be largely negative, Lan said. This would only have a knee-jerk impact on investors in the beginning, after which they would realise that "gold is still a good asset to hold in this environment."

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