Gold touched an eight-month high on Thursday, after Russian news reports of a mortar fire in eastern Ukraine boosted demand for the safe-haven metal and as less hawkish signals from U.S. Federal Reserve's last meeting minutes underpinned bullion.
Spot gold rose 1.5% to $1,897.21 per ounce. U.S. gold futures gained 1.6% to settle at $1,902 per ounce, reaching its highest level since mid-June.
"The Ukraine crisis has given extra momentum to bullion bulls who had been gravitating towards gold as an inflation hedge, evidenced by the recent surge of inflows into bullion-backed ETFs," Exinity analyst Han Tan said.
Russian-backed rebels and Ukrainian forces traded accusations on Thursday that each had fired across the ceasefire line in eastern Ukraine, raising alarm at a time when Western countries have warned of the possibility of a Russian invasion any day.
If Russia invades, then gold is likely to gain, but to see a sharp reversal that sends gold markedly lower would likely require Russian troops to actually be seen leaving the border, said Matt Simpson, senior market analyst at City Index.
Minutes of the latest policy meeting on Wednesday showed that while policymakers agreed that it would "soon be appropriate" to raise the Fed's benchmark overnight interest rate from its near-zero level, they would re-asses the rate hike timeline at each meeting.
"The latest FOMC minutes did not offer fresh hawkish clues, easing real yields back further into negative territory which in turn allowed spot gold to push on towards the psychologically-important $1,900 level," Exinity's Tan added. Higher interest rates tend to increase the opportunity cost of holding non-interest-paying gold.