* Italy election sparks fear about political chaos, rocks
financial markets
* Spot platinum falls to 7-week low, cheaper than gold for
the first time in a month
* Spot gold may rebound to $1,604/oz -technicals
* Coming up: Fed Chairman Ben Bernanke starts two-day
testimony to Congress
(Adds details, comments; updates prices)
By Rujun Shen
SINGAPORE, Feb 26 (Reuters) - Spot gold edged down on
Tuesday, with lukewarm interest from investors capping early
gains made on safe-haven demand for the metal as uncertainty
over Italy's election stoked fears of a resurgent euro zone debt
crisis.
Platinum dipped into a discount to gold for the first time
in more than a month, as the metal dropped as much as 1.7
percent to a seven-week low below $1,580 an ounce, tracking
weakness in a Tokyo market spooked by a stronger yen.
The Italian elections rocked 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.
In the previous session, the surge in demand for safety
assets helped gold rise nearly 1 percent towards $1,600 an
ounce, pushed the dollar index to a six-month high and
the yen to a one-month high against the euro, while
U.S. stocks suffered their biggest daily drop since November.
"People had been expecting a weaker yen but last night's
turmoil in Italy triggered the yen recovery, and that's part of
the reason we have seen stop-loss selling as the longs were
yen-based," said Kate Harada, general manager of the precious
metals division at Tokyo-based Tanaka Kikinzoku Kogyo.
Though platinum's fundamentals remained supportive, the
metal could face further weakness in the short term after it
broke below a key support level at $1,600 an ounce, she said.
Spot platinum stood at $1,587.80 by 0658 GMT, down 1
percent from the previous close. It dropped as far as $1,577.49,
it's lowest since Jan. 9.
The benchmark platinum futures contract on the Tokyo
Commodity Exchange fell to 4,725 yen a gram, its lowest
in more than five weeks.
Spot gold edged down 0.1 percent to $1,592.14 an
ounce, snapping a three-day winning session.
U.S. gold was up 0.3 percent to $1,591.90.
Gold's safe-haven appeal was not enough to offset the
bearish sentiment of recent weeks on a generally improving
global economic outlook and worries that the U.S. Federal
Reserve might slow or stop its bond-buying programme.
Spot gold has fallen about 5 percent so far this year,
compared to the 4-percent advance in S&P 500 Index.
"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.
Reflecting investors' lack of interest, 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.
This follows last week's 42-tonne drop in the fund's
holdings, the sharpest weekly fall in more than a year.
Meanwhile, speculators slashed their net long positions in
U.S. gold to the lowest level in more than four years in the
week to Feb. 19, data from the U.S. Commodity Futures Trading
Commission showed.
Investors will closely watch U.S. 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.
Precious metals prices 0658 GMT
Metal Last Change Pct chg YTD pct chg Volume
Spot Gold 1592.14 -1.72 -0.11 -4.92
Spot Silver 28.82 -0.19 -0.65 -4.82
Spot Platinum 1587.80 -16.70 -1.04 3.44
Spot Palladium 733.00 -0.22 -0.03 5.92
COMEX GOLD APR3 1591.90 5.30 +0.33 -5.01 25796
COMEX SILVER MAR3 28.79 -0.20 -0.68 -4.76 4914
Euro/Dollar 1.3058
Dollar/Yen 91.84
COMEX gold and silver contracts show the most active months
(Editing by Tom Hogue)
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