The price of gold rose about 1 percent on Monday as a sharp pullback in U.S. equities and uncertainty over the outcome of Italy's parliamentary election led to resurgent safe-haven buying, extending bullion's rally to a third day.
Bullion climbed near $1,600 an ounce after conflicting early forecasts of Italy's vote results raised fears that a divided parliament in the debt-laden country could hamper euro zone stability. The S&P 500 index fell almost 2 percent.
Recent comments by top Federal Reserve officials suggesting the U.S. central bank could reduce or halt its asset buying had hit gold's inflation-hedge appeal. Investors now look to Fed Chairman Ben Bernanke's semiannual testimony to Congress this week for clues on the future of U.S. economic stimulus.
"Clearly, gold could be going up ahead of the Bernanke testimony tomorrow. And gold has had quite a wash-out, so on a relative basis it is more attractively priced than other assets," said Axel Merk, chief investment officer of Merk Funds, which manages $630 million in mutual fund assets.
Spot gold rose 0.9 percent to $1,594.14 an ounce by 4:07 p.m. EST (2107 GMT), having hit a high of $1,596.80.
U.S. gold futures for April delivery settled up $13.80 at $1,586.60, with trading volume in line with the 250-day average, preliminary Reuters data showed.
Overall confidence in gold, however, remained fragile, with holdings of the SPDR Gold Trust falling 42.3 tonnes to 1,280.67 tonnes last week, its largest weekly outflow since August 2011.
Also underpinning gold was U.S. economic uncertainty related to $85 billion in across-the-board government spending cuts scheduled to take effect on Friday.
"Gold had a 'near-term bottom-out' here. We had a steep selloff in the last few weeks," said Ron Florance, managing director of investment strategy at Wells Fargo Private Bank.
"We think there is a near-term opportunity for a bounce up," Florance said.
The metal tumbled to a seven-month low of $1,554.49 on Thursday.
Hopes for a short-covering rebound grew after hedge funds and money managers had cut their net long gold futures and options positions to a four-year low, analysts said.
"The fact that net longs are now relatively small suggests plenty of scope for a renewed surge in buying, including short-covering," Capital Economics strategists said in a note.
Among other precious metals, silver rose 1.2 percent to $29.02 an ounce.
Platinum eased 0.3 percent to $1,600.75 an ounce, after prices fell to a five-week low of $1,593.45 last week. Palladium inched down 0.1 percent to $734.97 an ounce, having fallen to a one-month low last week.
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