Gold Advances as Ukraine Tension Spurs Demand for Haven Assets

May 12, 2014 3:02 pm ET

May 12 (Bloomberg) -- Gold futures advanced for the first time in five sessions as the crisis over Ukraine spurred demand for the metal as a haven.

Russia indicated it “respects” the results of two disputed referendums in eastern Ukraine yesterday, which separatists said backed independence, while the European Union pledged to accelerate work on broad economic sanctions. The U.S. and the EU deem the votes illegal, and the government in Kiev called them a “farce.”

Bullion has climbed 7.8 percent this year as the conflict between Russia and Ukraine increased the appeal of the precious metal as a store of value. The demand helped to revive gold prices that tumbled 28 percent in 2013, ending its 12-year rally, partly on the outlook for less stimulus from the Federal Reserve.

“As long as we have this explosive situation, the gold market will continue to act as a safe haven for investors,” Tom Power, a senior market strategist at RJO Futures in Chicago, wrote in an e-mail. “The secession-referendum vote this weekend has been negatively viewed. The tension in Ukraine along with short-covering is fueling the rally.”

Gold futures for June delivery rose 0.6 percent to settle at $1,295.80 an ounce at 1:49 p.m. on the Comex in New York, the biggest gain since May 2. The metal dropped 1.2 percent last week.

Fed Chair Janet Yellen said May 7 that while borrowing costs will be close to zero for a “considerable time,” policy makers will continue to reduce the pace of asset purchases in “measured steps.” The dollar traded near a one-month high versus the euro today on speculation that the European Central Bank will add further stimulus.

ETP Holdings

Bullion climbed 70 percent from December 2008 to June 2011 as the Fed bought debt and held borrowing costs at a record low.

Holdings in gold-backed exchange-traded products fell to 1,723.8 metric tons on May 9, the lowest since October 2009, data compiled by Bloomberg show.

Silver futures for July delivery climbed 2.2 percent to $19.543 an ounce on the Comex, the biggest gain since May 2.

On the New York Mercantile Exchange, platinum futures for July delivery advanced 0.8 percent to $1,441.90 an ounce. Palladium futures for June delivery rose 1.1 percent to $808.75 an ounce.

--With assistance from Phoebe Sedgman in Melbourne and Glenys Sim in Singapore.