BENGALURU: Gold tracked back from its highest in over a week on Wednesday after Italy indicated it was open to cutting its budget deficit and debt, soothing investors' nerves and prompting a wider move back into riskier assets.
Spot gold was little changed at $1,202.91 per ounce by 0934 GMT, having hit its highest since Sept. 21 at $1,208.32 earlier in the session. US gold futures were unchanged at $1,207.10.
"The situation is calming down a little bit. It's a little bit of a move into riskier assets in the euro zone that is slightly dampening gold," said Peter Fertig, analyst at Quantitative Commodity Research.
Global stock markets dropped on Tuesday after European Union officials expressed concern about Italy's budget plan, which would widen the deficit significantly. The deficit blowout revived fears of the euro zone debt crisis.
However, those concerns were tempered on reports that Italy would cut its budget deficit at a faster pace than expected.
Gold can be used as an alternative investment during times of political and financial uncertainty.
"Unless there is a meltdown in Italy or a financial crisis, which would also impact US markets, there is no strong reason for a jump in gold prices. I expect more sideways trading around the present levels with plus or minus around $20," Fertig added.
Gold prices have fallen for the past six months, losing over 11 percent, largely due to dollar strength, with the US currency benefiting from a vibrant economy, rising US interest rates and fears of a global trade war.
"Gold has come down quite a lot in recent months and does seem to be taking a pause. We still think the dollar is going to be the key driver moving forward for prices," said ING analyst Warren Patterson.
Gold is highly sensitive to rising interest rates, as these increase the opportunity cost of holding non-yielding bullion. Rising US borrowing costs also lift the dollar, in which gold is priced.
Holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, fell 0.32 percent to 23.72 million ounces on Tuesday.
Among other precious metals, silver rose 0.6 percent to $14.73, hovering close to the previous session's $14.91, its highest in more than a month.
Platinum climbed 0.2 percent to $829.00, while palladium shed 0.4 percent to $1,047.22.
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