SINGAPORE: Gold hovered around a key resistance at $1,700 an ounce on Tuesday as many investors stood on the sidelines in the penultimate week of the year, watching US lawmakers inch towards a deal to avert a fiscal disaster.
In a fresh offer to resolve the standoff on talks on the "fiscal cliff" - $600 billion worth of tax hikes and spending cuts to kick off in the new year, President Barack Obama is seeking $1.2 trillion from higher tax revenues and is willing to agree to $1.22 trillion in spending cuts.
Analysts expect a resolution to the problem to take some safe-haven appeal off gold, though failure to reach a deal would trigger a broad sell-off in financial markets on fear of another recession, which could drag gold down.
But the backdrop of easy monetary policy from the US Federal Reserve and other central banks should provide support, as investors worried about currency debasement and rising inflation flee to hard assets including gold.
"The $1,700 level is key resistance, but there isn't much room on the downside as investors remain confident in gold's outlook," said Li Ning, an analyst at Shanghai CIFCO Futures.
Li said that stable holdings in gold-backed exchange-traded funds showed investor interest remained.
Hopes for a resolution to the US budget tussle lifted Asian shares and other riskier assets, while the dollar index languished near a near two-month low hit in the previous session. A weaker greenback underpins the sentiment in dollar-priced commodities by making them cheaper for buyers holding other currencies.
Spot gold inched up 0.3 percent to $1,702.04 an ounce by 0632 GMT. US gold gained 0.3 percent to $1,703.60.
Technical charts suggest spot gold may rise to resistance at $1,711 per ounce, a break above which would open the way towards $1,717, Reuters market analyst Wang Tao said.
Asia's bullion buyers were also reluctant to jump into the market as prices have been stuck in a narrow range in the past few days.
"There is some light buying but it is not on the same level as what we saw last year or in the year before," said a Singapore-based dealer, adding that many market participants have already gone on holiday.
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