Gold prices dipped from their highest level since June on Tuesday, but an escalation of tensions in Eastern Europe could keep its safe haven demand-driven rally going.

Spot gold was down 0.5% at $1,895.76 per ounce by 1023 GMT, after scaling its best level since June 1 at $1,913.89 per ounce earlier. U.S. gold futures gained 0.1% to $1,901.70.

"There was a lot of pessimism leading into the European open. Stock markets opened significantly lower," and although still down on the day, a lot of those losses have been pared, taking some attraction out of gold, said Michael Hewson, chief market analyst at CMC Markets UK.

However, "geopolitical concerns could prompt central banks to slow down the pace of their tightening cycle, and that in itself is likely to be positive for gold," Hewson said.

While bullion is considered a hedge against inflation and geopolitical risks, interest rate hikes tend to raise the opportunity cost of holding non-interest-bearing bullion.

The United States and its European allies are set to announce fresh sanctions against Russia on Tuesday after President Vladimir Putin recognised two breakaway regions in eastern Ukraine, deepening Western fears of a new war in Europe. 

"If the Ukraine crisis escalates further, we believe that gold will remain in demand amid the increased risk aversion, meaning that its price will probably make further gains," Commerzbank analysts said in a note. U.S. benchmark 10-year yields slipped on Tuesday, capping losses in gold, which bears no interest. 

For spot gold, "the first resistance is already at $1,916.40, the high from last June. Then levels around $1,950 are already within reach," said Alexander Zumpfe, a precious metals dealer at Heraeus.

Spot silver rose 0.5% to $24.05 per ounce, platinum gained 0.4% to $1,078.91, and palladium was down 0.8% to $2,368.29.

(Reporting by Bharat Govind Gautam in Bengaluru, Editing by Louise Heavens) ((BharatGovind.Gautam@thomsonreuters.com; +91-80-6182-3021/ 3590 (If within U.S. call 651-848-5832 );))