Gold settled higher on Thursday as rising geopolitical tensions and options-related buying helped reverse the precious metal's early sharp losses after it fell to a 2-1/2 month low.
Bullion prices were underpinned after Ukrainian forces killed up to five pro-Moscow rebels as they closed in on the separatists' military stronghold in the east.
Spot gold rose as much as 1.1 percent to near $1,300 an ounce, with logging more than 20,000 lots in a 10-minute period, or about 20 percent of volume at the time, when Russia said it launched army drills near the border in response, raising fears its troops would invade.
Buying related to Thursday's COMEX May option expiration also supported gold prices, with heavy concentrations of open interest for both call and put options at the $1,300 strike price, traders said.
"Traders are eyeing that $1,300 mark, which offers some resistance to the rally," said Tom Power, senior commodity broker at Chicago-based RJO Futures. "You are going to get a lot of traders dancing around that number throughout the afternoon."
U.S. gold futures for June delivery settled $6.00 higher at $1,290.60 an ounce, while, spot gold was up 0.6 percent at $1,291 an ounce.
In early U.S. trading, it had fallen to a 2-1/2 month low of $1,268.24 due to firmer equities and a weaker technical picture that had triggered strong selling, traders said.
Upbeat U.S. durable goods data for March had earlier given a boost to the dollar, triggering further losses in the gold price.
Tensions between Moscow and Western powers over Ukraine are lending gold support but it remains in a somewhat fragile situation as interest from long-term investors is still absent, Saxo Bank's head of commodity strategy Ole Hansen said.
Investment demand remains weak with the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, seeing sharp outflows in recent days.
Last week, the fund's outflows totalled 9.3 tons, erasing all the gains made in the year.
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