SINGAPORE (Reuters) - Gold inched up on Thursday, holding near its highest level in two weeks hit in the previous session following a last-minute deal to avert a U.S. fiscal disaster, although caution remained over upcoming tough budget negotiations.
Commodities made a strong start to the new year by hitting multi-week highs on Wednesday after the U.S. Congress passed a bill that raises taxes on wealthy individuals and families, sparing middle- and low-income earners.
But it left unresolved another sticky issue involving $109 billion in planned military and domestic spending cuts, promising more political showdowns on the budget in coming months.
Gold typically benefits from economic uncertainties given its safe-haven status, but considering many investors have both equities and gold in their portfolios, bullion has also been closely watching movements in stock markets that have rallied on the U.S. fiscal deal.
Gold hit a high around $1,689 an ounce and was at $1,687.70 by 0646 GMT, up $1.35. It touched a two-week high above $1,690 in the previous session. Gold ended up around 7 percent in 2012 - the 12th straight year of gains, making it one of the longest bull runs ever for a commodity.
"Precious metals are currently tracking equities, however they are stuck within the next trading range. For gold, it will need to breach $1,695 before it can actually have another upward trend to break above $1,700," said Brian Lan, managing director of GoldSilver Central Pte Ltd in Singapore.
"For silver, it has to break $31.60."
U.S. gold for February was almost flat at $1,688.30 an ounce.
Premiums for gold bars were steady in Singapore at $1.10 to $1.20 an ounce to the spot London prices as supply had yet to recover after the Christmas and New Year holidays. Buyers from top consumer India were on the sidelines.
India's central bank has asked that volume and value restrictions be placed on gold imports by banks and agencies, while the finance minister said he was looking at further curbs on gold imports to help rein in a current account gap that touched an all-time high in the July-September quarter.
"People in India, especially the jewellers, will be making noise because the move may affect them. But of course, if you keep importing gold, you will need a lot of dollars. This restriction has happened in Vietnam and Thailand," a dealer in Singapore said.
"But the good thing about Thailand is that it both imports and exports gold. So, there is a balance."
India imported a record 967 tonnes of gold in 2011.
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.07 percent to 1349.92 tonnes on Wednesday from 1350.82 tonnes on Monday.
Editing by Himani Sarkar