Gold extends losses to below $1,300 as equities gain

SINGAPORE, Aug 18 (Reuters): Gold extended losses into a second session on Monday, slipping below $1,300 an ounce as equities recovered after an initial sell-off over escalating tensions in Ukraine.

Spot gold had fallen 0.4 per cent to $1,299.80 an ounce by 0314 GMT, after dropping 0.6 per cent on Friday. U.S.  gold fell about $5 to $1,300.90.

Asian stocks eked out gains on Monday after seeing Wall Street recover from the latest round of tensions in the Ukrainian crisis, although renewed uncertainty over the volatile conflict put a firm lid on markets.

"Gold just seems to be out of favour at the moment with equities on the rise and a lack of physical demand," said a trader in Sydney. "There was some selling as Tokyo and China opened this morning sending gold to session lows." Gold prices dipped below the key psychological level of $1,300 an ounce after falling through support at the 50-day moving average near $1,304.

"I wouldn't be surprised if gold prices edge towards the support level at the 200-day moving average of $1,285," the trader said.

Markets were eyeing developments on the geopolitical front for cues. Ukrainian forces raised their national flag over a police station in the city of Luhansk that was for months under rebel control, Kiev said on Sunday, in what could be a breakthrough in Ukraine's efforts to crush pro-Moscow separatists.

News on Friday that Ukrainian forces destroyed a Russian military column in Ukrainian territory initially hit Wall Street, drove down government bond yields and boosted safe-haven currencies like the yen and Swiss franc. U.S. stocks eventually pared their losses as risk appetite partially returned.    Tensions in Ukraine and the Middle East have largely been responsible for gold's near 8 per cent gain this year.  In a sign of safe-haven demand, hedge funds and money managers boosted their bullish bets on gold futures and options for the first time in three weeks, data from the Commodity Futures Trading Commission showed on Friday.  Meanwhile, physical demand in major buyers China and India has been weak with many consumers expecting prices to fall further.