Gold gains on weaker dollar, upside capped by fading Italy tensions

By Maytaal Angel

LONDON (Reuters) - Gold prices edged up on Thursday as a dollar rally came off the boil, though upside momentum in the precious metal, seen as a safe haven asset, was capped by an easing of political tensions in Italy.

Italy's two anti-establishment parties have renewed attempts to form a government and avoid snap elections that investors fear would serve as a quasi-referendum on Rome's membership of the euro zone.

Italian bonds and European equities posted a second day of gains, while the dollar fell for a second day versus the euro, making dollar priced gold cheaper for non-U.S. investors.

The euro's rise came as two polls in Italy showed 60-72 percent of respondents wanted the country to remain part of the euro zone.

"The dollar should remain in the driving seat for gold," said Carsten Menke, analyst at Julius Baer.

"We have a euro dollar target of $1.10 in three months time which should keep a lid on gold, assuming this political uncertainty doesn't escalate into a wider discussion about the existence of the euro zone or the euro."

Spot gold was up 0.3 percent to $1,304.31 per ounce at 1018 GMT, but was down 0.7 percent for the month, in what could be its second straight monthly decline.

U.S. gold futures for June delivery were 0.3 percent higher at $1,304.80 per ounce.

Helping gold were escalating trade tensions.

Washington will announce plans to slap tariffs on EU steel and aluminium imports on Thursday, sources said. The EU has said it does not want a trade war but will respond if Washington imposes tariffs.

China said on Wednesday it was ready to fight back if Washington was looking for a trade war, days ahead of a planned visit by U.S. Commerce Secretary Wilbur Ross.

Holdings of the largest gold-backed exchange-traded fund (ETF), New York's SPDR Gold Trust GLD, were unchanged on Wednesday from Tuesday, while the largest silver-backed ETF, New York's iShares Silver Trust SLV, rose 0.65 percent.

Spot silver rose 0.1 percent to $16.53 an ounce and platinum gained 0.6 percent to $911.90 an ounce.

Both metals were headed for a monthly rise of about 1 percent, their biggest since January.

Palladium was 0.3 percent higher at $986.2 an ounce and was headed for its biggest monthly gain since December, climbing over 2 percent.

(Additional reporting by Karen Rodrigues in Bengaluru; Editing by Mark Potter)