By Lewa Pardomuan
SINGAPORE (Reuters) - Gold was little changed on Friday but was on track to post a monthly gain, as growing tensions between Russia and Ukraine stoked safe-haven demand for the precious metal.
And while purchases from jewellery makers have helped gold bounce from a two-month low hit last week, the bullion still lacked strength to regain the key level of $1,300 due to concerns over a looming U.S. interest rate hike.
Ukraine's president said on Thursday that Russian troops had entered his country in support of pro-Moscow rebels who captured a key coastal town, sharply escalating a separatist war and prompting anger and alarm among Kiev's Western allies.
Gold was trading flat at $1,288.59 an ounce at 0608 GMT. Prices are poised to climb 0.5 percent in August, after dropping 3.4 percent in the previous month.
"Anything above $1,300 will attract some selling. We have to see if the situation in Ukraine is worsening," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong. "Sentiment is not so bullish for gold. We have to see when interest rates will start to go up," Leung said.
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Higher interest rates would dull gold's appeal, and pressure is building within the Federal Reserve to more clearly acknowledge improvements in the U.S. economy as early as next month and lay the groundwork for the central bank's first interest rate hike in nearly a decade.
The U.S. economy rebounded more strongly than initially thought in the second quarter with a bigger chunk of the growth driven by domestic demand in a bright sign for the future.
U.S. gold was little changed at $1,289.70 an ounce.
Asian shares slumped on Friday, after flaring Ukraine tensions spoiled investor risk appetite and bolstered the safe-haven yen, while the euro was on track to post its second straight month of declines. [MKTS/GLOB]
"Downside risk remains for gold over the next few months as Chinese physical demand remains on the sidelines. As China's demand for physical gold slows from the frenzied levels of 2013, onshore stocks of gold look elevated," ANZ said in a report.
"As demand from China remains lacklustre, a further move lower in prices will be required to stoke interest from the key consumer. We expect China to import, through Hong Kong, 750-800 tonnes of gold in 2014, down from 1,158 tonnes last year."
Net gold flows into China from Hong Kong dropped to 22.107 tonnes in July versus 40.543 tonnes in June, the lowest in three years, data showed on Monday.
The physical market in Asia saw purchases from jewellery makers this week, but buying interest began to subside as prices improved slightly.
Premiums for gold bars stood at 80 cents to $1.10 to the spot London prices in Hong Kong, and at 80 cents $1.00 in Singapore. In Tokyo, gold bars were on par with London prices.
"It's the summer season and it's normally very quiet. Dollar-priced gold is also increasing. I can't see buying or selling at the moment," said a physical dealer in Tokyo.
(Editing by Muralikumar Anantharaman and Subhranshu Sahu)