Gold steadies near 7-week peak as stocks drop

Getty Images

Gold steadied near seven-week highs on Wednesday as equity markets surrendered earlier gains to turn lower and the dollar extended losses versus a basket of currencies.

Spot gold was little changed at $1,231.47 an ounce, recovering from a daily low of $1,224.73. Overnight it hit a peak of $1,238.20, its highest since Oct. 23, having risen more than 2 percent on Tuesday as the dollar and stocks fell.

The metal quickly recovered early losses on Wednesday as a tentative recovery in equity markets lost traction. Gold has suffered this year from a move by investors back into stock markets, away from assets seen as safer, such as bullion.

Read MoreTraders still hoping Santa will bring Dow 18,000

"One of the reasons we're bullish on gold for next year is this idea that equity markets will run out of steam, and there will be some investor movement back into gold," Capital Economics analyst Caroline Bain said. "We're seeing that temporarily at the moment."

Commodities tomorrow: Gold pops on safe-haven buying

"The double headwinds of rising U.S. interest rates and persistent strength in the dollar does suggest that gold doesn't have too far to go upwards," she said, however.

A stronger U.S. unit makes dollar-denominated assets such as gold more expensive for holders of other currencies.

U.S. gold futures for December delivery were down 20 cents an ounce at $1,231.80.

Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.37 percent to 721.81 tonnes on Tuesday.

Read MoreGreek stocks crash, yields spike on political strife

The fund's holdings remain near six-year lows, however, as bullion investors worry that an expected increase in U.S. interest rates could dull demand for the metal.

As a non-interest-bearing asset, gold would have taken a hit from higher rates, but this week's comments from Federal Reserve officials helped calm investor nerves.

Read More

Gold slumped to a four-and-a-half-year low last month, undermined by a rocketing dollar and positive U.S. economic data.

"The diverging trends in monetary policies between the US and the rest of the world are... boosting the dollar, which is providing another headwind for gold," ScotiaMocatta said in a monthly note. "As such, it is difficult to get too bullish for gold."

In the physical markets, strong demand lifted coin sales to a record for the second straight year, the U.S. Mint said.

Traders were also watching regulatory developments in major consumer India, which could announce changes to import policies, according to a source.