"If the politicians reach an agreement on the fiscal cliff, the dollar could suffer and there could be more investment into gold,'' said Afshin Nabavi, head of trading at MKS Finance, referring to gold's behavior as a risk asset similar to shares. He said he expected gold to trade in a range of $1,650-1,670 per ounce in the near term.
A failure in the fiscal talks could spur safe-haven buying, boosting gold.
Senate Majority Leader Harry Reid on Thursday criticized Republicans in Congress for refusing to go along with any tax increases as part of a fiscal cliff remedy a she sketched out a pessimistic outlook for this week.
For the year, bullion is up around 6 percent, on track for a twelfth straight year of gains on rock-bottom interest rates, concerns over the financial stability of the euro zone, and diversification into bullion by central banks.
Spot gold is expected to drop into a range of $1,397-$1,447 per ounce over the next three months, as indicated by its wave pattern and a Fibonacci retracement analysis, according to Reuters market analyst Wang Tao.
In other markets, world shares and the euro edged higher as U.S. lawmakers prepared to resume negotiations, while the yen hit a two-year low on the prospect of drastic monetary easing.
Gold demand in India, the world's biggest buyer of the metal, remained strong on Thursday as jewelers were restocking for a festival, although retail demand was weak.
Silver advanced more than 0.50 percent to trade above $30 an ounce, platinum eased more than 0.20 percent to trade below $1,530 and palladium rose by more than two percent to hover around $704 an ounce.