Gold prices traded steady today amid encouraging signs that Italy was making an effort to ease its political turmoil and avert an economic disaster, while investors remain nervous about the unfolding euro zone debt crisis.
The uncertainty in solving the two-year-old debt crisis is likely to support safe haven interest in gold, but a widespread sell-off in response to disastrous news out of the euro zone could sink gold as investors are forced to liquidate their positions to cover losses elsewhere.
Yesterday, Italy moved closer to a national unity government, while benchmark Italian bond yields stabilised after surging to an unsustainable level the day before, easing fears the euro zone's third-largest economy was slipping into an economic abyss.
"The whole situation in Europe still worries people - Italy bonds, French bonds, euro zone exit," said a Singapore-based trader, adding the danger of liquidation could hit gold in the short term.
"I don't think we'll see prices go below $1,700 as physical demand is expected to resurface if prices drop." Spot gold edged up 0.4 per cent to $1,765.75 an ounce earlier this morning, on course for a third straight week of rises with a 0.7 per cent gain. US gold rose 0.4 percent to $1,767.40.
Investment flows into gold-backed exchange-traded funds continued, even as gold slumped for three consecutive sessions.
SPDR Gold Trust, the world's largest gold ETF, reported a fifth straight day of gains in its holdings - standing at 1,268.666 tonnes by November 10th, highest since late August.
"Given the ongoing high uncertainties and the current risk aversion, gold should remain well supported despite the latest price slump," said Commerzbank in a research note.
Reuters
