Gold prices traded flat on Monday on signs of the first real movement this weekend in negotiations over the "fiscal cliff" which removed some safe-haven bids in the precious metal.
Earlier in the session,bullion edged up on hopes that the Bank of Japan would use more monetary stimulus after Japan's next prime minister, Shinzo Abe, called for the aggressive measure to boost growth.
But gold came under pressure on Monday after House of Representatives Speaker John Boehner's latest "fiscal cliff" proposal to President Barack Obama would for the first time see the top income tax rates increase. Many see Boehner's compromise about tax increase as a potential breakthrough in the U.S. talks.
The metal had fallen for a third straight week last week. Gold, a traditional inflation hedge, has been under pressure as many economists expect the $600 billion in tax hikes and spending cuts could send the U.S. economy back into a recession.
"Should we get a sell-off, we suspect gold will be caught up in the resulting downdraft. We remain cautious on the markets short-term," said Edward Meir, precious metals analyst at brokerage INTL FCStone.
Spot gold was virtually unchanged near $1,696 an ounce, trading in a relatively narrow range of $13. U.S. U.S. gold for February delivery settled up $1.20 at $1,698.20, with trading volume on track to finish sharply below its 30-day average,preliminary Reuters data showed.
Last week, gold briefly rose to a two-week high above $1,720 an ounce after the U.S. Federal Reserve pledged to buy $45 billion a month in longer-term Treasuries, a potentially inflationary move that was expected to support gold.
It swiftly retraced those gains, however, in line with other financial markets. Some investors took profits in gold, which is up 8.5 percent year to date, as trading desks prepared to close the book for year-end.
Meanwhile, Spot silver broke below a 100-day moving average of $32.14 an ounce, a level it had held since mid-August. It was marginally lower on the day above $32, barely off a one-month low of $32.08 it hit earlier in the session.
U.S. Budget Talks Still in Focus
Tom Kendall, head of preciousmetals research at Credit Suisse, said gold was getting little support fromspeculation over the cliff at present.
A new proposal for tax increase on incomes over $1 million a year from Boehner on Sunday was seen as a step forward with only 14 days left before the drastic automatic fiscal changes take effect, analysts said. A 45-minute meeting on Monday between Boehner and Obama is a further sign that talks to avert the "fiscal cliff" could be yielding progress after weeks of stalemate.
Among other platinum group metals, Spot palladium was down nearly 0.6 percent below $697, after posting a seven-week consecutive rise last week, its longest winning streak in more than two years. Platinum was also down around 0.6 percent near $1,605 an ounce.