The third-largest economy in the European currency bloc waded into troubled waters after Prime Minister Silvio Berlusconi failed to secure a parliamentary majority in a budget vote. While parliament approved the budget bill, Mr Berlusconi announced plans to resign his post shortly after gold floor trading closed in New York.
"Italy coming under greater scrutiny is helping provide support to the (gold) market and subsequently the market was able to get through some of that psychological resistance up near $US1800," said Stephen Platt, analyst with Archer Financial Services.
The most actively traded contract, for December delivery, settled up $US8.10, or 0.5 per cent, at $US1799.20 a troy ounce on the Comex division of the New York Mercantile Exchange.
November-delivery gold settled up $US8.10, or 0.5 per cent, at $US1798.40 a troy ounce though no contracts changed hands.
Gold rallied to a fresh six-week high at $US1804.40 in the wake of Italy's vote as investors clamoured to shield their wealth by purchasing safe-haven assets such as gold, which is seen as a store of value.
"I think it's the gradual realisation that if Europe comes out of this with a deal intact and it gets settled in the short term, we're still looking at a long period of money printing on both sides of the Atlantic, and that's going to be bullish for gold," said Michael Gross, commodity analyst with OptionSellers.com.
Italy has been under international pressure to implement labour reforms and reduce its government borrowing amid the escalating European debt crisis. The euro bloc's third-largest economy has seen its cost of borrowing hit a euro-era record in recent days, as investors worried not enough is being done to bolster the economy.
"Italian debt approached the 7 per cent mark this morning with about the same speed that Prime Minister Berlusconi's government was coming apart at the seams," said Jon Nadler, senior metals analyst with Kitco Metals, in a note to clients.
Gold's recent upswing has coincided with significant increases in the holdings of physical gold-backed exchange traded funds, a sign that retail investors are again favouring the precious metal. The world's largest gold ETF, SPDR Gold Trust (GLD), saw its gold holdings increase by 389,147.2 troy ounces, or 1 per cent, to 40.37 million ounces, over the past week.
"Investors again flock towards the safe-haven asset types in a bid to preserve wealth levels," said James Moore, metals analyst at FastMarkets.com, in a note to clients.