Gold prices rebounded on Friday, as the US dollar eased after Italian political tension sparked a sell-off in the country's bond markets and investors sought a safe haven in bullion. Spot gold gained 0.2 percent at $1,292.12 per ounce by 1:33 p.m. EDT (1733 GMT), after hitting its lowest since Dec. 27 in the previous session at $1,285.41.
The metal was heading for its biggest weekly decline since early December, down nearly 2 percent versus last week. US gold futures for June delivery settled up $1.90, or 0.2 percent, at $1,291.30 per ounce. "Gold got stronger off Italian geopolitics and the sell-off in Italian bond markets," said Josh Graves, senior commodities strategist at RJO Futures.
The demands of populist parties likely to form Italy's next government, which promised to ramp up spending, caused Italian investors to flee bond markets and purchase gold. "A debt crisis in Italy would have a far bigger impact than one in Greece. Gold would profit as a result," Commerzbank analysts said in a note. This caused more volatility in global equities, which also provided gold support, Graves added.
Earlier, the sentiment index in gold was indicating it was strongly oversold while the dollar was heavily overbought as US inflation measures were rising, said Gianclaudio Torlizzi, partner at consultancy T-Commodity in Milan. Thursday data showed a tightening US labour market and mid-Atlantic factory activity picking up, bolstering expectations the Federal Reserve will raise interest rates next month.
"We think there is room for a strong rally into the summer and we have a gold target of $1,430 by August," Torlizzi said. Spot gold is still expected to hit $1,302 per ounce as it has stabilized around a support at $1,287, Reuters technical analyst Wang Tao said. Spot silver fell 0.4 percent to $885.40 an ounce, on track to shed slightly more than 1 percent for the week.
Platinum dropped 0.4 percent to $885.40 per ounce after hitting a five-month low of $876.50. Platinum was set to fall around 4 percent on the week, the biggest weekly loss since early December. Palladium declined 1.2 percent to $966.30 per ounce, earlier hitting a two-week low at $960.22 and was heading for a nearly 3 percent weekly loss.