NEW YORK/LONDON (Reuters) - Gold fell on Tuesday after trading above $1,800 an ounce for the first time in seven weeks, as news that Italian Prime Minister Silvio Berlusconi would resign improved the picture for of euro zone investment risk.
Investors saw less reason to hold gold as a hard asset, hoping that European leaders can now refocus on ending the region’s debt crisis. Berlusconi said he would step down as soon as Italy’s parliament passed urgent reforms demanded by euro zone leaders to cut huge debt in euro zone’s third largest economy.
Bullion traded higher through most of the session, supported by safe-haven buying on worries that a teetering government in Italy would accelerate the euro zone sovereign debt crisis. S&P 500 recovered its upward momentum to rise 1 percent.
“Gold is down as the Berlusconi news negated some of the risk premium, flight-to-quality dynamic in gold. It was just a headline reaction,” said Erik Gebhard, principal of futures broker Altavest.
Spot gold rose 0.7 percent to fetch $1,782.60 at 3:10 p.m. EST. It peaked at $1,802.60, the highest price since September 21.
U.S. December gold futures settled up $8.10 at $1,799.20 an ounce.
Volume came in below its 30-day norm as some investors appeared to stay on the sidelines, awaiting more clarity from the latest development from the euro zone. On Monday, gold posted its biggest daily gain in two weeks on technical buying.
“Today’s focus is the lack of real resolution to the issues in the euro zone and the concerns of the Italian debt crisis. For the short term, gold looks like it is going to break over the psychological resistance of $1,800,” said Miguel Perez-Santalla, vice president at Hereaus Precious Metals Management.
Gold reached an all-time high above $1,920 an ounce in early September before retreating as much as 20 percent.
“It feels like with the current situation in the euro zone, gold should be able to break the all-time highs quite soon and probably end the year around the highs for the year or even at new highs,” said MKS Finance head of trading Afshin Nabavi.
Global holdings of gold in the major exchange traded funds (ETF) have risen by nearly 1.5 million ounces in the last month, the largest increase on a monthly rolling basis since late August.
The biggest gold-backed ETF, SPDR Gold Trust, said its holdings rose 0.85 percent from the previous session to 1,255.66 tonnes by November 7, the highest in more than two months.
“There has been a very observable transfer of gold ounces in terms of investment capital from hedge funds, wholesale funds, bullion banks, toward the retail community, and that has put a floor in the price,” said Michael Jansen, commodities analyst with JPMorgan.
In other precious metals, silver slipped 1 penny to $34.85 an ounce. Platinum rose 0.1 percent to $1,656.99, and palladium rose 1.9 percent to $670.72.
Additional reporting by Maytaal Angel in London; editing by Bob Burgdorfer and Alden Bentley