By Jan Harvey
LONDON (Reuters) - Gold steadied on Wednesday ahead of the release of minutes of the U.S. Federal Reserve's latest policy meeting, as concerns over tensions in Ukraine balanced against a firmer dollar and fresh outflows from bullion-backed funds.
Worries over the stand-off between Russia and Ukraine and technical momentum after a break above $1,300 helped lift gold to a near two-week high on Tuesday, but uncertainty over U.S. monetary policy and lacklustre physical and investment appetite have curbed that rally.
Spot gold was at $1,309.19 an ounce at 0920 GMT, up 0.1 percent but off an earlier high of $1,314 an ounce, while U.S. gold futures for June delivery were up 70 cents an ounce at $1,309.80.
"Geopolitics and the slump in the dollar gave gold the incentive needed to make a break higher, but so far it has happened without any strong conviction," Saxo Bank's head of research Ole Hansen said.
"Those holding a bullish view unfortunately have to rely on the geopolitical situation to escalate further in order to take it back above resistance, which I see located at $1,321."
Russia on Wednesday dismissed as "groundless" concerns in Kiev and the West over the presence of its troops near the border with Ukraine, saying they posed no threat, and accused Washington of fuelling tension in the region.
European shares rose nearly half a percent after a difficult few days in which tensions have escalated in Ukraine and the European Central Bank has tempered expectations of a new mass asset-buying programme.
The dollar index edged off three-week lows to rise 0.1 percent, with a recovery against the Japanese yen after its biggest fall in more than seven months.
"We do not see much more upside (for gold) here unless the dollar tumbles even more or Ukraine tensions escalate once more," VTB Capital said in a note. "We do not expect sustained gains in the short run, given limited physical demand and little investor interest."
"Today market participants will pay some attention to the March FOMC meeting minutes," it added.
Physical gold funds showed further outflows, with holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, falling 2.7 tonnes to 806.48 tonnes on Tuesday.
That reduced its net inflow for the year to just 8 tonnes. The fund has not seen any fresh inflows since March 24.
On the physical markets, buying picked up slightly in China, the world's largest gold consumer. Bullion prices on the Shanghai Gold Exchange reached a premium of about $1 an ounce to spot prices for the first time since early March.
They were at a discount of as much as $10 last month on weak demand.
Among other precious metals, silver was down 0.6 percent at $19.88 an ounce, while spot platinum was little changed at $1,434.50 an ounce and spot palladium was up 0.1 percent at $772.80 an ounce.
The platinum group metals are being supported by an ongoing miners' strike in South Africa, source of some three-quarters of global platinum supply and about a third of mined palladium output.
South African coal producer Exxaro (EXXJ.J) said on Wednesday it hoped to diversify into platinum group metals and was looking at opportunities that could include assets Anglo American (AAL.L) has signalled it might divest.
Anglo American is the parent company of the world's biggest platinum miner, Anglo American Platinum (AMSJ.J).
GRAPHIC-2014 metal returns: http://link.reuters.com/cag37s
GRAPHIC-Gold/USD correlation: http://r.reuters.com/ryx52s
GRAPHIC-Gold across currencies: http://r.reuters.com/wun62s
(Additional reporting by A. Ananthalakshmi in Singapore; editing by Jane Baird)