SINGAPORE: Gold edged higher on Thursday, supported by central bank purchases and a weaker dollar as European leaders raised the possibility that a bailout deal for Greece was imminent.
Gold, up nearly 11 percent this year on the back of US efforts to stimulate its economy, has been hovering around $1,730 for most of this week as investors focus on whether the United States will avoid a fiscal crisis.
But expectations of a looming Greek deal with lenders dented the dollar against the euro and aided gold prices. News that Brazil, Kazakhstan and Turkey had all increased their gold holdings also supported sentiment.
The euro rose to a two-week high versus the greenback after news of the possible Greek bailout, making dollar-priced commodities, such as gold, more attractive to buyers using euro and other currencies.
"The market is lacking direction right now and investors have become increasingly cautious," said Chen Min, an analyst at Jinrui Futures in the southern Chinese city of Shenzhen.
"The sentiment is mainly supported by concerns about the US 'fiscal cliff', which offsets the easing of geopolitical tension in the Middle East which should have dented gold's safe-haven appeal."
Spot gold edged up 0.2 percent to $1,731.08 an ounce by 0351 GMT.
US gold also gained 0.2 percent to $1,731.70.
The "fiscal cliff" refers to a $600 billion tax hike and spending cuts that are due to roll in early next year in the United States, if Congress fails to reach an agreement to avert it. It could trigger another recession and even the Federal Reserve wouldn't be able to cushion its impact.
In the Middle East, Israel and the Islamist Hamas movement ruling the Gaza Strip agreed on Wednesday to an Egyptian-sponsored ceasefire to halt an eight-day conflict that killed 162 Palestinians and five Israelis.
SILVER HITS ONE-MONTH HIGH
Spot silver rose to $33.43 an ounce, its highest in more than a month, before easing slightly to $33.38.
Silver has risen more than 20 percent so far this year, leading the precious metals complex and dwarfing gold's gains.
Silver usually tracks moves in gold, but can also be influenced by riskier assets due to its industrial nature.
Technical support could push the metal to $35.36 in the next four weeks, said Reuters' Wang.
"A break above that level will open the way towards $40.54, the 61.8 percent Fibonacci retracement on the fall from the record high of $49.51 to $26.04," he said.
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