Gold whipsawed by Italian vote as US dollar wins as haven of choice

[SINGAPORE] Gold swung after voters in Italy rejected a referendum on constitutional reform and Prime Minister Matteo Renzi announced his resignation, with investors seeking a haven in the US dollar rather than the precious metal as they pored over this year's latest ballot box-driven shift.

Bullion for immediate delivery oscillated between an initial gain of as much as 0.9 per cent, then a drop of as much as 0.5 per cent, according to Bloomberg generic pricing. The metal traded 0.4 per cent lower at US$1,172.78 an ounce at 3:48pm in Singapore after rising on Friday by 0.5 per cent in the vote countdown.

Gold has been whipsawed in 2016 as investors reacted to unexpected political events in top economies, jumping after Britain's shock vote to quit the EU in June, then tumbling after Donald Trump won the White House.

While the referendum has raised concerns over Italy's future in the euro-region, the nation's political and legal system means a "no" vote is unlikely to trigger a quick exit. A gauge of the US currency climbed on Monday as investors assessed the implications of the latest upset.

"The safe haven saw an early rush on the announcement of the Italian referendum results before the market hastily took profit," Jingyi Pan, a market strategist at IG Asia Pte in Singapore, said in a report.

"Nevertheless, the Italian referendum results may just be the tip of the iceberg as concerns over the stability of the Italian banking sector and the structural integrity of the European Union set in."

ETF Holdings

While the results of the Italian vote have prompted some demand for haven assets, the prospects of higher US interest rates are curbing the appeal of bullion, which doesn't bear yields. Investors are exiting gold-backed exchange-traded funds with holdings contracting for a 16th straight day as of Friday, the longest stretch since March 2015.

Hedge funds and other large speculators boosted their short position in gold futures and options by 13 per cent in the week ended Nov 29 to the highest since February, Commodity Futures Trading Commission data released Friday show. That's the fourth straight gain, the longest streak since Dec 1, 2015.

In China, bullion of 99.99 per cent purity was fell 0.1 per cent to 265 yuan a gram (S$54.79) on the Shanghai Gold Exchange, after swinging between gains and losses.

On the Shanghai Futures Exchange, gold for June delivery was little changed at 268.75 yuan a gram, while silver rose 0.5 per cent to 4,165 yuan a kilogram.

Spot silver dropped 0.6 per cent, while platinum fell 0.1 per cent, and palladium lost 1.1 per cent.

BLOOMBERG