Gold rises 2 percent on Italy worry, technical buying

Visitors touch a 220 kg (485 lbs) gold bar, worth around $12.8 million at today's price, on display at the Jinguashi Gold Ecological Park in Xinbei city September 16, 2011.

NEW YORK/LONDON (Reuters) - Gold rose more than 2 percent on Monday, boosted by technical buying, expectations of easier monetary policies and political uncertainty in Italy which threatened to further complicate the euro zone's sovereign debt crisis.

Bullion biggest one-day gain in two weeks reflected improving sentiment after Germany's Chancellor Angela Merkel ruled out using gold to boost the euro zone bailout fund. In Italy, Prime Minister Silvio Berlusconi's defying pressure to resign also added confusion to the bloc's effort to contain a two-year old crisis.

The metal -- a traditional safe haven which has recently taken to tracking riskier assets -- has gained over 4 percent in the last five sessions, reaching a 1-1/2-month high on Monday. U.S. equities, however, did not appear to be weighed down as much by the euro zone debt worries. S&P 500 edged up.

"The gold market is reacting to...the Federal Reserve, ECB and central banks around the world providing really cheap money. That has traditionally been very bullish for the gold market, and I don't think this time is any different," said Michael Cuggino, portfolio manager of the Permanent Portfolio Funds with $15 billion in assets.

Last week, gold gained only 2 percent even after a surprise interest rate cut by the European Central Bank and as Fed Chairman Ben Bernanke cut its U.S. economic outlook and did not rule out additional market stimulus in the future.

Spot gold rose to a high of $1,794.10, its loftiest since September 21 and was up 2.2 percent at $1,793.16 an ounce by 2:46 p.m. EDT.

Last week, gold posted its second consecutive week of gain, largely helped by market jitters in the euro zone.

Adam Sarhan, CEO of Sarhan Capital, said gold last week posted a breakout on weekly charts, as it closed above $1,700, which was also the neckline of the bearish double-top pattern from earlier this year.

"Gold managed to rally last week even though a slew of other risk assets ended in the red. Investors prefer the comfort of gold during times of global duress -- Greece is on the brink of leaving the euro zone," Sarhan said.

Also supporting was uncertainty ahead of Italy's key parliamentary vote on budget reforms, which could test the leadership of Prime Minister Silvio Berlusconi in euro zone's third biggest economy. Italian bond yields hit euro lifetime high amid uncertainty.

"Gold does seem to be temporarily the safe haven. It's not being driven by U.S. investors but rather by other sources of business, such as the Europeans," said George Nickas, commodities broker with FC Stone.

U.S. gold futures for December delivery gained $35 to $1,791.10.

Monday's trading volume was in line with its 30-day norm, following recent slower pace. U.S. gold futures posted its third lowest volume in the previous session.

"There's no enthusiasm that I can see from the U.S. investing public. People are waiting for European situation to clear up and U.S. economic data to return to normal," Nickas said.

Some traders said that low turnover in gold and other commodities was partially related to the demise of MF Global, as customers of the former U.S. futures brokerage were unable to trade their positions after the brokerage's bankruptcy protection filing last week.

Holdings of the SPDR Gold Trust, the world's biggest gold-backed exchange-traded fund, gained 1.513 tonnes on the day to 1,245.064 tonnes by November 4, the highest in more than a month.

Silver was up 2.3 percent at $34.88, platinum was rose 1.4 percent to $1,652.99, while palladium gained 1.3 percent to $660.

(Additional reporting by Rujun Shen in Singapore; Editing by Alden Bentley)