Gold steadied on Thursday as uncertainty regarding the economic policies of new U.S. President-elect Donald Trump helped support the precious metal even as some investors returned to riskier assets such as stocks.
Trump's plans call for new infrastructure and massive tax cuts could boost the U.S. budget deficit. Coupled with protectionist trade policies, some are concerned the policy mix would ultimately hit the dollar and increase inflation.
"In the long term, a Trump victory is positive for gold because of the prospects of a higher budget deficit to finance all these infrastructure and tax cuts," Commerzbank commodities analyst Carsten Fritsch said.
Rising inflation and budget deficits are often seen as positive for gold prices. Trump's victory has also called into question an expected increase in U.S. interest rates in December.
Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion and is seen as a safe-haven in times of uncertainty. Trump has also pledged to tear up or renegotiate international trade deals, which could unleash a wave of protectionism and stall a tentative global economic recovery.
On Wednesday, news of Trump's win initially led investors to flee stocks and emerging market currencies in favor of safe-haven assets such as gold and sovereign bonds. But early gains were later given back as U.S. markets reacted positively to the Trump win and there was a rally in most assets on Thursday.
Gold rose nearly 5 percent to touch $1,337.40 on Wednesday, its highest in six weeks. But prices have since retreated as U.S. markets reacted positively to the Trump win.
Gold rose nearly 5 percent to touch $1,337.40 on Wednesday, its highest in six weeks but closed just 0.2 percent higher.
Goldman Sachs said in note that while higher uncertainty warranted an allocation to gold from a portfolio construction perspective, "the tactical outlook remains mixed."
Gold is expected to fall to $1,249 per ounce, based on its wave pattern and a Fibonacci retracement analysis, according to Reuters technical analyst Wang Tao.
Silver was up 1.7 percent at $18.79 an ounce.