Gold jumped to a three-week high on Monday as mounting tensions in Ukraine curbed investor appetite for risk, sending equities lower and boosting bullion's appeal as an insurance asset.
Palladium hit a fresh high since August 2011 at $814.20 an ounce on growing fears that supply would suffer from fresh U.S. sanctions on top producer Russia and because of prolonged labour strikes in No. 2 miner South Africa.
Ukraine gave pro-Russian separatists a Monday morning deadline to disarm or face a "full-scale anti-terrorist operation" by its armed forces, while the U.N. Security Council held an emergency session on Sunday night to discuss the crisis.
Spot gold rose 0.3 percent to $1,322.00 an ounce at 1203 GMT, having earlier touched its highest since March 24 at $1,329.70. Gold futures for June delivery were up by the same margin to $1,322.50 an ounce.
"You have tensions between Russia and the West over Ukraine again which is giving support to gold, although the strength coming from expectations interest rates in the U.S. will stay low for a prolonged period is a more dominant driver overall," ABN Amro analyst Georgette Boele said.
"But as the U.S. data continues to improve, there could be a readjustment in interest rate expectations and that's when gold is going to suffer," she added. "As for the geopolitical situation, it is much harder to predict how things can go but I don't expect a full-blown crisis there and prices shouldn't go beyond the $1,391 level hit in mid-March."
Gold has built up support over the past week after the U.S. Federal Reserve's March meeting minutes showed officials were not keen on increasing interest rates straight after unwinding bond purchases, as the markets had feared.
But an improvement in U.S. economic reports left investors still unconvinced that the rally in gold could continue, analysts said.
"...We continue to stand by our year-end gold price target of $1,050 an ounce," Goldman Sachs said in a note. "More broadly, we believe that with tapering of the Fed's QE, U.S. economic releases are back to being a key driving force behind gold prices."
Implying underlying investor bearishness and pessimism over the longer-term outlook, outflows continued from SPDR Gold Trust , the world's largest gold-backed exchange-traded fund.
Holdings in the fund fell 1.80 tonnes to 804.42 tonnes on Friday.
Buying in the physical markets was still thin with Chinese prices trading at a discount to spot gold.
PALLADIUM AT NEAR-3-YEAR HIGHS
Palladium was up 1 percent at $808.47 an ounce, on course for its fifth session of gains.
Relations between Russia and the West are at their worst since the Cold War, after Moscow annexed Crimea from Ukraine, saying the Russian population there was under threat.
The United States is prepared to step up sanctions against Moscow if pro-Russian military actions in eastern Ukraine continue, a senior U.S. envoy said, with the sanctions set to target mining, banking and energy, among other sectors. [ID:nL2N0N50AK
Palladium has outperformed other precious metals this year, gaining about 14 percent also supported by fears of supply, growing demand in the auto sector and buying from two newly-launched exchange-traded funds (ETFs) in Johannesburg.
Platinum gained about 1 percent to its highest in nearly a month at $1,467.40 as labour strikes continued in South Africa.
Silver fell 1 percent to $19.76 an ounce.