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Gold bounces to 2-month peak as Ukraine worries grow

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·2-min read
FILE PHOTO: Gold coins are displayed at Ginza Tanaka store in Tokyo
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By Asha Sistla

(Reuters) - Gold hit an over two-month high on Tuesday as concerns over tensions surrounding Ukraine prompted investors to flock to safe havens, even as they awaited the Federal Reserve's decision on its interest rate hike trajectory.

Spot gold XAU= rose 0.3% to $1,848.53 per ounce by 10:02 a.m. ET (1502 GMT), while U.S. gold futures GCv1 rose 0.5% to $1,851.50.

Russia said it was watching with great concern after the U.S. put 8,500 troops on alert to be ready to deploy to Europe in case of an escalation. (Full Story)

Gold is acting like a "flight to safety trade" in a wait-and-see scenario until after the Fed announcement tomorrow," said Bob Haberkorn, senior market strategist at RJO Futures.

Investors want to know how aggressive the Fed would be for the rest of the year and if it would signal more hikes to tackle inflation, Haberkorn added.

The Fed is expected to signal it plans to raise rates in March and offer insight into how aggressive it intends to be. Rising interest rates increase the opportunity cost of holding non-interest bearing bullion. (Full Story)

Although gold is considered a hedge against inflation and geopolitical risks, interest rate hikes would raise the opportunity cost of holding non-yielding bullion.

"Despite the Fed likely set to announce the start of a U.S. rate hike cycle this week, gold keeps holding up well. Support for the yellow metal comes from high inflation and elevated market volatility," UBS analyst Giovanni Staunovo said.

"Unless the Fed surprises with an even more hawkish statement, gold (could) stay supported," said Staunovo, adding that historically, gold outperforms equities when market volatility increases. .VIX (Full Story)

Spot silver XAG= fell 0.9% to $$23.75 an ounce. Platinum XPT= dropped 1% to $1,016.99 while palladium XPD= rose 1% to $2,169.06.

(Reporting by Asha Sistla in Bengaluru; Editing by Shailesh Kuber)

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