LONDON: Gold rose to a two-week high on Wednesday in line with other commodities and stock markets after the US Congress finally passed a bill fending off huge tax hikes and spending cuts that threatened to jeopardise economic growth.
The United States averted economic calamity on Tuesday when lawmakers approved a deal to prevent the tax hikes and spending cuts that would have pushed the world's largest economy off a so-called "fiscal cliff" and into recession.
Gold touched a two-week peak of $1,685.90 before slipping slightly to stand up $10.96 at $1,685.5 per ounce at 1219 GMT. US gold for February rose $10.20 an ounce to $1,686.00 an ounce.
The long-awaited deal to avoid a US fiscal crisis prompted a broad global market rally on Wednesday, with shares and commodities rising sharply while the dollar and safe-haven government bonds fell.
"Gold will be benefiting from an anticipation that the dollar will weaken as risky assets go up," said Nic Brown, analyst with Natixis.
A softer dollar boosts commodities priced in the greenback by making them cheaper for holders of other currencies.
An agreement on the US budget can be viewed as a positive for riskier currencies such as the euro and Australian dollar, while a deadlock into the new year would have been deemed positive for the safe-haven and highly liquid dollar.
Gold is traditionally an inflation hedge and a market that investors rush to in times of trouble, but the metal has lately behaved more like an industrial commodity - rising and falling with the stock market and sometimes even following the dollar.
Saxo Bank vice president Ole Hansen said that if gold closes above a current resistance level of around $1,685, the metal could attract more speculative buying, with $1,721 in sight.
Gold ended up around 7 percent in 2012, the twelfth straight year of gains. However, it recorded a soft final quarter to the year, falling 5.4 percent, its worst quarterly performance since the July to September period of 2008.
Its struggle to maintain traction has dented some investors' confidence in the metal, curbing a stronger move in prices.
"The temporary resolution of the fiscal cliff problem, coupled with some new year zeal, will push prices higher to start with, but overall nothing has really changed from this time a week ago, or a month ago," Marex Spectron said in a note.
"As such, the markets will remain slightly moribund and rangebound between $1,650 and $1,700 for the time being."
Indian gold futures extended gains to their highest in two weeks after the finance minister hinted at making imports of the metal more expensive, triggering speculative buying from physical traders.
Finance Minister P. Chidambaram said on Wednesday that India was considering raising the cost of gold imports in a bid to control a record high current account deficit that could further dent shipments to the world's biggest buyer of the metal.
Egyptian customs have stopped a Centamin shipment of gold held at Cairo airport from being exported because it did not obtain approval from the ministry of petroleum, a customs official told the state news agency MENA on Wednesday.
Among other precious metals, silver was up 2.01 percent to $30.89 an ounce, while platinum firmed 1.66 percent to $1,560.49 and palladium rose 2.31 percent to $708.00 an ounce.
Platinum ended 2012 up around 10 percent, mainly driven by concerns about widespread miner strikes in top producer South Africa. Platinum is used as an auto catalyst.
Center>Copyright Reuters, 2013