Gold Ends Above $1,663, 'Cliff' Caps Gains

Are You Buying or Selling Gold?
Don Farrall | Getty Images

Gold finished the session modestly higher on Thursday, as investors reacted to the likelihood that the U.S. would miss its deadline to avert spending increases and tax hikes, which helped boost safe-haven demand for the yellow metal.

Markets kept a close eye on talks to avert a fiscal crisis in the United States.President Barack Obama was flying back to Washington on Thursday, with the top Republican in Congress reconvening the House of Representatives on Sunday, just as the clock ticked toward a year-end deadline for action to avert the looming "fiscal cliff'' that threatens to push the economy into recession. (Read More: Boehner Needs to Stop Partisan Approach: Hoyer)

Markets found little cheer in news that the number of Americans filing new claims for unemployment aid fell last week to nearly its lowest level in 4 1/2 years, a possible sign that employers have picked up the pace of hiring.

"The effect the jobs data had on gold was via a firming of the dollar,'' said Ross Norman,chief executive of precious metals trader Sharps Pixley.

Spot gold turned positive in mid-morning U.S. trading, rising nearly 0.20 percent to trade above $1,662. It has come off a 4-month low of $1,635.09 struck last Thursday, but remains well below a record high of around $1,920 hit in September 2011.

U.S. gold futures for February settled about $3 higher to end trading at $1,663.70 an ounce.

Favorable U.S. economic data could signal prospects for an end to the ultra-loose monetary policy that has supported gold prices.

"The better the data the more the fear that monetary easing will ultimately come to an end,'' said Credit Suisse analyst Tobias Merath. "Every time there is this fear that monetary easing may not be continued to the extent that was previously expected there can always be a little bit of selling pressure.''

Gold prices have benefited from the loose monetary policy of leading central banks because of gold's appeal as a hedge against inflationary fears.

The United States faces $109 billion in across-the-board spending cuts starting in January unless a deal is reached to either replace or delay them. Democrats want to switch the spending cuts to tax increases for the most part.

"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.