SINGAPORE: Gold regained strength on Wednesday as a weaker US dollar spurred buying from jewellers, but prices were still within sight of an almost four-month low given signs of progress in US fiscal talks that dented bullion's safe-haven appeal.
Some investors have shifted into equities as optimism a deal could be reached soon to avert the "fiscal cliff" of tax hikes and spending cuts that threaten to plunge the United States into recession fuelled an appetite for riskier assets.
Gold added $5.86 an ounce to $1,675.40 by 0247 GMT, after falling to it lowest since August at $1,661.01 in the previous session on technical selling.
"We are likely to see some technical buying. Our support level is now at about $1,640. I don't think any further buying will be sustainable," said Lynette Tan, senior investment analyst at Phillip Futures in Singapore.
A US deal on the "fiscal cliff" could eventually lift the US dollar and prompt investors to turn to other risk assets such as stocks, hurting demand for gold, she said.
"We will see a lack of safe-haven demand."
US House of Representatives Majority Leader Eric Cantor said he expects a vote on a Republican offer to avert the "fiscal cliff" on Thursday, and he expects to have enough votes to pass the measure.
US gold futures for February rose $6.00 an ounce to $1,676.70.
Gold, traditionally an inflation hedge, is on track to drop around 5 percent this quarter, worst since the third quarter of 2008 at the height of the global economic crisis, marked by the bankruptcy filing of Lehman Brothers.
But for the year, gold is up around 7 percent and set for a twelfth straight annual growth driven by rock-bottom interest rates, concerns over the financial stability of the euro zone and diversification into bullion by central banks.
"We're seeing better demand today, but some customers have also cut their positions after prices fell back below $1,700. Indonesia is a little bit active. Typically, they are quiet," said a physical dealer in Singapore.
"The price comes up, yet the Indonesians are buying. Thailand has been buying recently, so I think they are quite long. Premiums are between $1 and $1.10. It's little changed."
In other markets, shares rose and the euro stayed around multi-month highs on Wednesday. The dollar index was softer, making commodities priced in the greenback cheaper for holders of other currencies.
Center>Copyright Reuters, 2012
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