May 29, 2018 / 10:15 AM / 2 months ago

PRECIOUS-Gold rises as Italy turmoil rocks financial markets

 (Recasts; updates prices, headline; adds comment, byline,  NEW
YORK to dateline)
    * Markets fear a snap Italian election will be referendum on
EU
    * Euro at 11-month lows, Italian shares slump

    By Renita D. Young and Maytaal Angel
    NEW YORK/LONDON, May 29 (Reuters) - Gold prices rose on
Tuesday, but gains were limited as traders weighed a buoyant
dollar against a deepening political crisis in Italy that
provoked a second day of heavy selling on European financial
markets.
    Italy's president set the country on a path to early
elections on Monday, appointing a former International Monetary
Fund official as interim prime minister with the task of
planning for snap polls and passing the next budget.
    Investors fear repeat elections - which could take place as
soon as August - might serve as a quasi-referendum on Italy's
role in the European Union and euro zone and strengthen the
country's euroskeptic parties even further.             
    Gold, seen as a safe haven, often gains from political
turmoil.
    But keeping the metal's upside in check, the events in Italy
pushed the dollar to a 10-month high versus the euro, making
dollar-priced gold costlier for non-U.S. investors.
    Spot gold        gained 0.18 percent at $1,300.01 per ounce
by 1:36 p.m. EDT (1736 GMT), earlier hitting a five-day low of
$1,293.40, while U.S. gold futures         for June delivery
settled down $4.70, or 0.4 percent, at $1,299 per ounce. 
    Markets are approaching a massive risk-off event, said Shree
Kargutkar, vice president and portfolio manager at Sprott Asset
Management. 
    "Traders have begun buying the U.S. dollar versus the euro,
sterling, as well as (emerging market) currencies, which
explains why the U.S. dollar has been rising," he said. "Gold
has been behaving exceptionally well when measured across
various major currencies and it continues to maintain an uptrend
against the U.S. dollar as well."
    Short-dated Italian bond yields, a gauge of political risk,
soared to their highest since late 2013 in their biggest move in
26 years, weighing on gold.             
    Adding to uncertainty in Europe, Spanish Prime Minister
Mariano Rajoy will face a vote of confidence on Friday.
            
    Elsewhere, markets are awaiting U.S. inflation data due this
week that could provide clues to future interest rate increases
ahead of the June Federal Reserve policy meeting. 
    Higher U.S. interest rates make non-yielding gold less
attractive to investors.
    "Beyond politics, we still see the U.S. rate cycle and U.S.
dollar in the driving seat for gold. This should keep a lid on
prices for now and supports our short-term neutral view," Julius
Baer analyst Carsten Menke said in a note.
    Spot silver        lost 0.5 percent at $16.38 an ounce,
earlier hitting $16.28, an eight-day low.
    Platinum        gained 0.4 percent at $904.90 an ounce and
palladium        declined 1.1 percent at $975.75.

 (Additional reporting by Karen Rodrigues in Bengaluru;
Editing by Alexandra Hudson and Rosalba O'Brien)
  
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