Gold up again but gains small as fiscal crisis hedge

NEW YORK/LONDON Fri Dec 28, 2012 3:14am IST

An employee takes a gold Combibar out of a press machine at a plant of gold refiner and bar manufacturer Valcambi SA in the southern Swiss town of Balerna December 20, 2012. REUTERS/Michael Buholzer

An employee takes a gold Combibar out of a press machine at a plant of gold refiner and bar manufacturer Valcambi SA in the southern Swiss town of Balerna December 20, 2012.

Credit: Reuters/Michael Buholzer

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NEW YORK/LONDON (Reuters) - Gold prices rose for a fourth straight day on Thursday for their longest winning stretch in nearly two months, but the gains were small for a market seen as a key hedge to the U.S. fiscal crisis, dealers said.

Bullion prices have crept up since December 21, though they have gained no more than 1 percent in all as America heads for another possible recession from punitive tax hikes and spending cuts scheduled to start as early as next week.

Traditionally a safe-haven and inflation hedge that investors rush to in times of trouble, gold has lately behaved like any risk asset -- often rising and falling with the stock market and sometimes even following the dollar.

This week's moves in gold -- even with the thin trading volumes that accompany the holiday season -- were surprisingly tiny as the clock ticked toward a year-end deadline for action to avert the so-called U.S. fiscal cliff, dealers said.

U.S. stock indices -- the Dow, S&P 500 and Nasdaq -- have lost about 2 percent on the average in the last four sessions.

"If this is all gold can do as we fall off the cliff, then it's got real trouble ahead in terms of direction," said Frank McGhee, head precious metals trader at Integrated Brokerage Services in Chicago.

"The fiscal cliff is bearish; it's higher tax rates and lower spending and it's recessionary, so gold should have moved up a lot more by now if it's a hedge towards that. If it's trading as a risk asset, it should have fallen more sharply. But here we are, trapped in a range."

GRAPHICS:

2012 asset returns: link.reuters.com/muc46s

2012 commod returns: link.reuters.com/faz36s

Gold across currencies: r.reuters.com/wun62s

Gold/platinum ratio: link.reuters.com/xez92s

Plat/palladium ratio: link.reuters.com/qub87s

Gold's February futures contract on COMEX, the most active on the New York exchange, settled at $1,663.70 an ounce, up $3, or 0.2 percent on the day. Over the past week, it has gained $17.80, or just over 1 percent, after hitting a four-month low of $1,645.90 on December 20.

The spot price of bullion, which trades through the day, hovered at around $1,664 an ounce, up about $5 or 0.3 percent from Wednesday's late afternoon levels. Since last Thursday, the spot price has gained $17 or 1 percent.

Gold prices barely budged on news that the U.S. Congress will hold a work session on Sunday beginning at 6:30 p.m. EST (2330 GMT), a day before the December 31 deadline for the fiscal cliff, to try and reach a deal.

The United States faces $109 billion in across-the-board spending cuts starting in January unless a deal is reached to either replace or delay them. Democrats, led by President Barack Obama, want to switch the spending cuts to tax increases for the most part -- a plan opposed by Republicans led by John Boehner, Speaker of the U.S. House of Representatives.

Most traders expect gold to move in a $30-$40 band until some conclusion is reached over the fiscal crisis.

"If the politicians reach an agreement on the fiscal cliff, the dollar could suffer and there could be more investment into gold," said Afshin Nabavi, head of trading at London's MKS Finance, who expects gold to trade at $1,650-1,670 near term.

Reuters market analyst Wang Tao said the spot price could drop into a range of $1,397-$1,447 per ounce over the next three months, as indicated by its wave pattern and a Fibonacci retracement analysis.

Since the turn of the century, gold has experienced one of the longest bull runs in a commodity, with bullion prices set for a 12th straight year of gains.

Much of this year's gains were aided by ultra-loose monetary policy by the world's leading economies, bullion buying by central banks trying to diversify foreign reserves and concerns over the financial stability of the euro zone.

In India, the world's No. 1 gold buyer, demand for the precious metal was strong from jewellers restocking for a festival, although retail buying on the whole was weak.

In industry news, Randgold Resources Plc (RRS.L) said it had cut the production forecast for its troubled Ivory Coast gold mine after a fire over Christmas at the project's mill.

In other precious metals, silver was up 0.7 percent to $30.18 an ounce, platinum eased 0.1 percent to $1,531.24 and palladium rose 2.2 percent to $704.97.

(Additional reporting by Lewa Pardomuan in Singapore; editing by Andrew Hay)

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