Spot gold rose on Wednesday as investors flocked to safety on doubts about Italy's ability to push economic reform, and that eurozone leaders could be too late to pull the region's fettering debt crisis out of a tailspin. Bullion rose as global stock markets and other riskier assets sank, after Italian borrowing costs reached breaking point as Prime Minister Silvio Berlusconi's insistence on elections instead of an interim government opened the way to prolonged political and economic turmoil.
Gold has risen 2 percent in the last 3 sessions in a flight to safety amid concerns about the viability of the euro and the 17-nation currency bloc. Germany's Chancellor Merkel said on Wednesday Europe's plight was now so "unpleasant" that deep structural reforms were needed quickly. "Gold prices are likely to reflect the degree of trust and confidence that investors have in the authorities to solve the crisis," said HSBC metals analyst James Steel.
"Even the suggestion that some countries should be allowed to exit the euro or that the euro be scrapped altogether is itself a bullish indicator for gold," he said. Gold rose 0.2 percent to $1,787.79 an ounce by 12:35 pm EST (1735 GMT). On Tuesday, it hit an intraday high of $1,802.60 - its strongest since late September. US gold futures for December delivery were down $8.90 at $1,790.30 an ounce.
Silver was down 1.4 percent at $34.42 an ounce. European leaders last week opened the idea that Greece's sovereign debt could default and the country might not receive EU financial aid if it failed to adopt austerity measures. Meanwhile, benchmark bond yields of Italy, the bloc's third largest economy, shot to a level that is widely deemed unsustainable, reflecting investors' concerns that they may not get their money back.
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