London - Gold steadied on Tuesday as caution ahead of testimony from Federal Reserve chief Ben Bernanke later in the day curbed early gains made after a deadlock in the Italian elections sparked demand for bullion as a haven from risk.
European shares slid 1.1 percent and the dollar and safe-haven German bunds climbed in early trade after an inconclusive vote left Italy facing political stalemate and rekindled fears of a new euro zone debt crisis.
Although gold has tended to trend in line with stocks and against the dollar this year, it rose above $1,600 an ounce early in the day as it recovered some haven appeal in its own right. It has struggled to maintain those gains, however.
Spot gold was little changed at $1,593.05 an ounce at 14:37 SA time, after touching a high of $1,601.80 in earlier trade.
US gold futures for April delivery were up $6.60 an ounce at $1,593.20, off a peak of $1,602.30.
“(Gold) seems to have rekindled its safe haven qualities,” Saxo Bank vice president Ole Hansen said. “But whether it will last for long probably depends on Bernanke this afternoon.”
“On average, I would think his statement will be gold supportive as an offset from the recent (Fed) meetings,” he said. “I'm looking for 1,605, followed by 1,620-25, as major levels of resistance.”
Italy faced political turmoil on Tuesday after a stunning election that saw the anti-establishment 5-Star Movement of comedian Beppe Grillo become the strongest party in the country, but left no group with a clear majority in parliament.
Former prime minister Silvio Berlusconi indicated his centre-right party might be open to a grand coalition with the centre-left bloc of Pier Luigi Bersani, which will have a majority in the lower house.
“(The) Italian elections have been the first of the 2013 scheduled event risks to blow a hole in risk appetite. That the anti-establishment 5 Star movement was the party to win the single largest share of the vote proves a sharp reminder to Brussels that fiscal austerity can potentially be undone with a popular vote,” Dutch bank ING said in a note.
“The lack of a clear winner in Italy and the unlikely return of a national solidarity government... should demand a higher risk premium of euro zone assets and some safe-haven support to the dollar.”
Traders are gearing up for the first of two days of Fed chairman Ben Bernanke's congressional testimony, which will heavily scrutinise the Fed's controversial bond-buying programme and gauge his confidence in the resilience of the US economy.
“Any rally (in gold) will be contingent on Bernanke's testimony tonight, with a dovish statement likely to support gold above the $1,600 an ounce level,” ANZ said in a note.
Hints from the Fed that some members are becoming uncomfortable with its current ultra-loose monetary policy have hurt gold prices this year.
Investment interest in the metal has been weak. The world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, reported its fourth successive daily outflow on Monday, of 7.8 tonnes.
That took its week-on-week decline to more than 50 tonnes.
Goldman Sachs cut its 2013 gold price forecast to $1,600 an ounce from $1,810 an ounce, saying the metal's recent price drop and an increase in US real interest rates have led it to bring forward its projections for a decline in the metal.
If that projection proves accurate, it will mark the first year gold has recorded a lower average price year-on-year since 2001, when its record-breaking 12-year bull run began.
Among other precious metals, platinum dipped into a discount to gold for the first time in over a month as it slid to a seven-week low at $1,577.49 an ounce. Heightened risk aversion is hurting industrial commodities like the autocatalyst metal.
Analysts say its rally to 17-month highs earlier this month had also left it overstretched.
Spot platinum was down 0.5 percent at $1,596.24 an ounce, while spot palladium was flat at $733.22 an ounce. Silver was down 0.6 percent at $28.85 an ounce. - Reuters