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Gold bulls still sidelined even with higher risks

Source: World Gold Council

Gold futures were barely higher Monday even as tensions around Russia and Ukraine sent ripples of unease across markets, but unless there's greater escalation, the yellow metal is not likely to trade out of its recent range, analysts say.

Between the uncertainty surrounding Israel's incursion in the Gaza and the finger-pointing between Russia and the West over downed Malaysia Airlines Flight MH17 in Ukraine, it would seem a perfect scenario to bring out the gold bugs.

However, gold futures, higher since early June, were 2.8 percent off the July high of $1,346.80 per troy ounce. Gold futures for August fell 2 percent last week despite geopolitical headlines that have rattled markets. Gold is still 5.5 percent higher since June 2.

On Monday, gold futures for August were just slightly higher at $1,313 per troy ounce.

"I don't think we're going to break out. I think everything is priced into gold, but I do think it will stay over $1,300 with everything going on," said George Gero, an analyst with RBC. "Instead of people buying a single event, I think you're going to see people putting in bids for gold. Besides benign interest rates and the geopolitics, you have enough worries—even the stock market catching some profit taking. People are looking at gold as an alternative."

Gold jumped nearly 1.5 percent Thursday in part on the steep selloff in stocks as well as the news of the shooting down of Flight MH17. The U.S. alleges pro-Russian separatists shot down the plane, but a bristling Russia blames Ukraine.

"Fundamentally, we don't seem too many drivers for higher gold prices. The other thing we look for is Chinese demand, and right now we're seeing negative Shanghai premium, so we don't really see that demand driver for gold, at least for the last couple of months, and we don't see it going forward either," said Mike Dragosits, senior commodity analyst at TD Securities. "Unless there's some real escalation in tensions between Russia and the U.S. or Russia and Ukraine and Europe, it's going to be tough to get a much higher price for gold."

Read MoreChina: Don't rush to blame Russia for MH17

Gero said he expects gold to average $1,325 this year. "That doesn't mean it won't go to $1,350. Technically, we need a $1,350 or higher close to get more of the momentum funds involved," said Gero.

Kevin Grady, president of Phoenix Futures and Options, said there is a lot going against gold, including that lack of demand from physical buyers.

"The key for me is who's doing the buying. The specs are coming in here with the geopolitical situation. The real players in the market are selling, which to me means this is a short-lived rally," he said. "You saw a lot of specs that came in and drove the market to the $1,325 level."

Grady and Dragosits said a strong negative force in the market is the belief that U.S. interest rates will soon be on a path higher, after the Fed finishes tapering its bond buying program.

"The U.S. economy is doing well, and tapering is getting to be complete. We think interest rates are going to go up, and higher rates are bad news for the market," Dragosits said.

But Dragosits said things could flare up at any point in Ukraine, and that would again drive safe-haven buying.

Read MoreGaza death toll tops 500

Grady said the market has been responding more to Ukraine than Israel and Gaza, and one factor that could hit gold is weakness in Europe. He is also worried about the health of its banking system.

Europe is dependent on Russian energy and has close business ties with Moscow. Greater sanctions could be a negative for Europe.

"I would be a seller if it rallies," Grady said. "We're kind of stuck in a range at this level. If you started getting to $1,150, you will see mine closures. I'm looking for a catalyst. Who's going to buy gold at $1,400? I don't know who that person's going to be right now, and I don't see anything on the horizon; $1,150 to $1,400 is going to be gold's range."

Read MoreGlobal turmoil may punish complacencey: El Erian

--By CNBC's Patti Domm

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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