Gold edged back towards $1,670 an ounce on Thursday, recovering from this week's 3-1/2 month low as physical buyers returned to the market, but uncertainty over negotiations surrounding the US fiscal crisis kept traders on the sidelines.
Conflict over the stalled “fiscal cliff” talks grew more heated on Wednesday and threatened to become even more so Thursday when the action is expected to shift for the first time to the floor of the US House of Representatives.
Financial markets are sensitive to negotiations to avert the arrival of a $600 billion package of tax hikes and spending cuts due to arrive in January. European stocks hit a 19-month closing high on Wednesday on hopes talks were progressing well, but have since retreated.
Spot gold was up 0.1 percent at $1,668.51 an ounce at 12:14 SA time, while US gold futures for December delivery were up $2.10 an ounce at $1,669.80.
Prices are set for their biggest quarterly drop since Q3 2008 in the October to December period, with the announcement of a fresh round of usually bullion-friendly US monetary easing last month resulting in only temporary gains.
“Gold seems to be suffering from investor fatigue, particularly in a context of higher risk appetite, which has favoured more risky assets,” BNP Paribas analyst Anne-Laure Tremblay said. “On the downside it's being supported by the 200-day moving average, and we see little reason for a break lower.”
“However, in the absence of news, there seems to be little appetite for a sustained move higher. Despite the heated rhetoric, we expect a deal on the fiscal cliff to be struck between Democrats and Republicans by the deadline. This should be mildly positive for risk appetite.”
On the wider financial markets, oil prices fell 40 cents a barrel to $109.89, the euro held steady against the dollar, and German government bonds firmed as hiccups in US budget talks prompted investors to buy back into cheapened safe-haven bonds.
Traders are awaiting direction from the fiscal talks and a raft of US economic data out later, including final third-quarter GDP, November existing home sales, and the Philadelphia Fed business activity index for December.
PHYSICAL BUYING RECOVERS
Asia's physical buying picked up after gold dropped to its lowest in nearly four months earlier this week, with some market participants concerned about a potential supply shortfall next week as refineries close for holidays.
In Hong Kong, dealers quoted the premiums in the range of 90 cents to $1.40 an ounce, the highest since end of August, up 10 cents from a week earlier.
“Physical buying has picked up, and we may see supply a little tight next week as refineries will have a shortened production week,” one Singapore-based dealer said.
From a chart perspective, gold remains firmly underpinned by technical resistance at $1,661, this week's low, its 200-day simple moving average, and the 50 percent retracement of its rise from May's lows for the year to October's highs.
“A move below 1,661 in gold would point to lower in range toward targets near 1,629 before basing,” technical analysts at Barclays Capital said in a note.
Among other precious metals, silver was up 0.2 percent at $31.06 an ounce. It has underperformed gold this week to fall 3.6 percent and is on track for its biggest monthly drop since May.
Spot platinum was down 0.1 percent at $1,584.25 an ounce, while spot palladium was down 0.4 percent at $688.72 an ounce. Palladium has been the best performer of the precious metals so far this quarter, currently up 8.8 percent.
The autocatalyst metal is highly exposed to the US and Chinese car markets, which have shown signs of growth recently, while platinum is more heavily used in by European carmakers, which remain under pressure.
This week palladium was at its most expensive compared to gold since March, and its priciest versus platinum since April. - Reuters