Gold was barely changed in Monday's pre-holiday session, with futures ending down a notch amid light volume and uncertainty over America's fiscal condition in the coming year.
Most commodities, including oil and copper, ended lower as the U.S. Congress drifted without a solution toward the new year after a Republican plan to avert debilitating tax hikes and spending cuts failed to gain ground last week.
The dollar, which often moves in the opposite direction of commodities, edged higher by 2:00 p.m. EST (1900 GMT), erasing losses in the euro.
"Given the condition of other markets and the relative strength of the dollar, gold is doing pretty fine," said James Dailey, portfolio manager at TEAM Financial Asset Management in Pennsylvania.
The spot price of gold stood at $1,656.99 an ounce, versus late Friday's level of $1,656.61. The spot price could test support at $1,631, as it may have completed a rebound from a Dec. 20 low of $1,635.09, Reuters market analyst Wang Tao said.
In U.S. gold futures, the benchmark February contract in New York settled down 60 cents at $1,659.50. Volume in gold futures was less than a quarter of the 30-day norm, with metals markets on New York's COMEX closing earlier than usual for Tuesday's Christmas Day holiday.
Gold has been in both risk-on and risk-off modes lately, with investors undecided about direction for the precious metal due to the so-called U.S. "fiscal cliff."
Traditionally a safe-haven for investors when other commodities and risk assets are down, bullion has bucked that trend in recent weeks and moved in tandem with the dollar.
(Read More: Why One Gold Bull Thinks the Sell-Off Won't Last)
Some analysts say an impasse in the U.S. budget talks boosts gold's safe-haven appeal. Others argue that the metal is increasingly behaving like a risk asset, which is why a budget deal could offer investors some direction.
Peter Fertig, analyst with Quantitative Commodity Research in London, said he believed the fiscal cliff will be avoided "at the last minute" and gold will benefit from that.
"The weaker dollar and steady stock markets are giving support to gold. Gold has key support around last week's low of $1,635, with resistance around $1,675, near the lows touched in early November," Fertig said.
Dailey of TEAM Financial said gold is likely to turn into a safe-haven again next year as the United States appeared on course to another credit rating downgrade after Standard & Poors cut the country's "AAA" rating to "AA" in Aug 2011.
Fitch Ratings said last week it could issue a U.S. downgrade if the Dec. 31 deadline for resolving the fiscal cliff is not met.
"None of the budget proposals being put forward now is bringing the U.S. any closer to fulfilling the requirements of the credit rating agencies; so another downgrade is almost certain even if we get past the fiscal cliff, and that should be good for gold," Dailey said.
Since the turn of the century, gold has experienced one of the longest bull runs in a commodity, with bullion prices set for a 12th straight year of gains.
Much of this year's gains were aided by ultra-loose monetary policy by the world's leading economies, bullion buying by central banks trying to diversify foreign reserves and concerns over the financial stability of the euro zone.
Physical demand for gold has also been strong recently, with No. 1 buyer India scrambling to purchase limited stocks available from local banks after most overseas sellers left for the Christmas vacation.
Even so, hedge funds and money managers slashed their net long positions in gold futures during the week to Dec. 18 to their lowest level since the end of August, according to the Commodity Futures Trading Commission's Commitments of Traders report issued on Friday.