Gold holds near $1,700 as focus turns to fiscal cliff

LONDON: Gold held steady below $1,700 an ounce on Friday, with prices heading for a third straight weekly fall amid uncertainty over stalled US budget negotiations to avert a fiscal crisis.

US President Barack Obama and House of Representatives Speaker John Boehner met for 'frank' discussions on Thursday as frustration mounted over a stalemate in talks on the "fiscal cliff", a $600 billion package of tax hikes and spending cuts due early next year.

Investors were wary of taking positions while negotiations were ongoing, and as trading wound down ahead of the year-end. European shares were also little changed on Friday, while the euro eked out small gains against the dollar.

Spot gold was little changed at $1,695.34 an ounce at 1324 GMT against $1,696.69 late on Thursday, headed for a 0.4-percent weekly drop. US gold was flat at $1,697.00.

Failure to reach agreement on handling the cliff could push the US economy into recession, but averting a crisis would likely benefit gold, which has traded closely with assets seen as higher risk, such as stocks, this year.

"The assumption is that the politicians will reach a sensible resolution, which will help gold eventually," Standard Chartered analyst Daniel Smith said. "Gold may rally when equities do, but my experience is that gold will be a laggard."

Stimulus measures from central banks, which have kept up pressure on long-term interest rates while fuelling inflation concerns, have put gold on track for a 12th year of gains.

But the metal took little support from the Federal Reserve's announcement this week that it will buy $45 billion of government bonds each month after its "Operation Twist" program expires, with many cashing in on brief price gains.

"Despite the Fed's implementation of QE4, the (precious metals) market remains focused on the potential adverse liquidity impact of the US fiscal cliff," Deutsche Bank said in a note on Friday.

"Furthermore, the Fed's targeting of unemployment as a tool to gauge monetary accommodation could be taken as hawkish given the apparent decline in US unemployment over the past year."