SINGAPORE: Spot gold inched up on Tuesday, extending gains into a fourth consecutive session as uncertainty over Italy's election results stoked fears of a resurgent euro zone debt crisis and boosted bullion's appeal as a safe-haven investment.
The Italian elections shook global markets, with no party or coalition winning a majority in the Senate, fuelling worries of a split parliament and power vacuum in the euro zone's third-largest economy.
The surge in demand for safety assets helped gold rise nearly 1 percent towards $1,600 an ounce and the dollar index to a six-month high in the previous session, while US stocks suffered their biggest daily drop since November.
"Concerns about Italy's political chaos drove investors to scoop up gold but the rebound is limited as investors remained reluctant," said Li Ning, an analyst at Shanghai CIFCO Futures.
A generally improving outlook on the global economy, and concerns about the duration of the US Federal Reserve's monetary stimulus programme, has sapped the interest of gold buyers and sent spot gold down more than 5 percent this year.
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, reported its holdings dropped for the fifth consecutive session on Monday to 1,272.848 tonnes, matching a similar sell-off run in May 2011.
Meanwhile, speculators slashed their net long positions in US gold to the lowest level in more than four years, data from the US Commodity Futures Trading Commission showed.
Spot gold edged up 0.2 percent to $1,596.40 an ounce by 0315 GMT, extending gains into a fourth straight session.
US gold rose 0.6 percent to $1,596.10.
Technical analysis suggested spot gold could rebound to $1,604 an ounce, as indicated by its wave pattern and a Fibonacci retracement analysis, said Reuters market analyst Wang Tao.
Investors will closely watch US Federal Reserve Chairman Ben Bernanke's testimony to Congress on Tuesday and Wednesday, to seek further clues on the Fed's attitude on its monetary policy.
A poll showed that likely government budget cuts and the prospect for messy political fights over fiscal policy will weigh on the US economy this year, as the world's top economy is headed to automatic cuts in most government programmes on March 1, in the absence of a budget deal among lawmakers.
A weaker economy would argue for the need for the Fed to maintain its bond-buying scheme, extending support for gold as an inflation hedge. But worries about the world's top economy slipping into another recession could in the short term hammer gold alongside riskier assets.
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