SINGAPORE Gold struggled to break resistance at $1,700 an ounce on Tuesday, with many investors stood on the sidelines in the penultimate week of the year, watching U.S. lawmakers inch towards a deal to avert fiscal calamity.
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 had expected a resolution to the problem to take some safe-haven appeal off gold, though failure to ink 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 U.S. Federal Reserve and other central banks should provide support, as investors worried about currency debasement and rising inflation flee to hard assets including gold.
"Risk appetite has been improving lately and that has dampened interest in gold," said Li Ning, an analyst at Shanghai CIFCO Futures.
"The $1,700 level is key resistance, but there isn't much room on the downside as investors remain confident in gold's outlook."
Li said that stable holdings in gold-backed exchange-traded funds showed investor interest remained.
Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, inched down to 1,350.519 tonnes on Dec 17, but still held near a record high of 1,353.346 tonnes hit earlier in the month.
Spot gold was little changed at $1,699.14 an ounce by 0217 GMT. U.S. gold edged up 0.2 percent to $1,700.70.
Reuters market analyst Wang Tao said charts suggested spot gold is expected to rise to resistance at $1,711 per ounce, a break above which would open the way towards $1,717.
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.
Precious metals prices 0217 GMT
Metal Last Change Pct chg YTD pct chg Volume
Spot Gold 1699.14 1.49 +0.09 8.65
Spot Silver 32.41 0.15 +0.46 17.05
Spot Platinum 1609.99 7.50 +0.47 15.58
Spot Palladium 697.47 1.00 +0.14 6.89
COMEX GOLD FEB3 1700.70 2.50 +0.15 8.55 5150
COMEX SILVER MAR3 32.50 0.22 +0.68 16.42 1662
COMEX gold and silver contracts show the most active months
(Editing by Joseph Radford)