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Gold Drops After Reaching 7-Week High on European Debt Risk

Gold declined before a parliamentary vote in Italy that will show whether Prime Minister Silvio Berlusconi has enough support to stay in power and implement austerity measures.

Bullion for immediate-delivery fell as much as 0.3 percent to $1,789.73 an ounce and traded at $1,790.25 at 3:02 p.m. in Singapore. The metal touched $1,798.65 yesterday, the most expensive since Sept. 21. Gold for December delivery traded little changed at $1,792.30 on the Comex in New York.

The Chamber of Deputies will vote at 3:30 p.m. in Rome on a routine report on last year’s budget plan that will reveal whether Berlusconi retains a majority in the 630-seat house. Berlusconi denied a report he would step down and pledged to call a confidence vote next week to pass an austerity package that aims to boost growth in the nation’s economy and lower the 1.9 trillion-euro ($2.6 trillion) debt.

“The situation in Italy doesn’t look too good,” said Natalie Robertson, analyst at Australia & New Zealand Banking Group Ltd. in Melbourne. “Even though they’re going to run a primary surplus this year, their debt to GDP ratio is still 121 percent and the cost of borrowing more money is increasing.”

Italy’s 10-year bond yields reached 6.68 percent yesterday, the highest in 14 years, amid concern the nation will struggle to pay its debts. The vote today is the first such test since three party members defected to join the opposition and six others publicly called on the premier to quit.

Bond Yields

Berlusconi’s coalition has been unraveling since contagion from the region’s debt crisis led the country’s bond yields to surge in July, prompting Italy’s European Union allies and the European Central Bank to demand more austerity measures to balance the budget and try to spur growth in an economy that has lagged behind the European average for more than a decade.

Gold may also decline after the European Central Bank’s Juergen Stark said Europe’s debt crisis will be under control in two years, said Alexandra Knight, an economist at National Australia Bank Ltd. in Melbourne.

Holdings in exchange-traded products backed by gold gained 0.6 percent to 2,297.9 tons yesterday, the highest since Aug. 23, data compiled by Bloomberg show.

Cash silver declined 0.6 percent to $34.7625 an ounce. Spot palladium advanced 0.4 percent to $664.02 an ounce and platinum dropped 0.5 percent to $1,649 an ounce.

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