Gold firms on soft dollar, US fiscal talks eyed

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Gold gained on Monday after dropping by a percent last week as the dollar came off the previous session's highs. (Reuters) Gold gained on Monday after dropping by a percent last week as the dollar came off the previous session's highs. (Reuters)
SummaryGold gained on Monday after dropping by a percent last week as the dollar came off the previous session's highs.

Gold gained on Monday after dropping by a percent last week as the dollar came off the previous session's highs, while continued U.S. discussions to avert an upcoming fiscal cliff also lent support.

U.S. Republican and Democratic leaders have agreed on a framework to reform the tax code and government benefit programs next year, but first need to prevent across- the-board tax increases and spending cuts or the so-called fiscal cliff due to begin in January that could push the economy back into recession.

Hope that U.S. politicians would find common ground to steer clear of the fiscal cliff boosted Asian shares on Monday. The dollar index eased from a two-month high hit on Friday, making commodities priced in the greenback more affordable for buyers holding other currencies.

The dollar is losing momentum for further rally after Friday's positive news on the fiscal talks, which will support gold, said Li Ning, an analyst at Shanghai CIFCO Futures.

The discussion between the two parties are unlikely go smoothly, which would potentially benefit gold, a traditional safe haven favoured by investors during political and economic uncertainty, she said.

While last week's report from the World Gold Council painted a lacklustre picture of the world's gold consumption, investment will continue to underpin prices, Li added. Spot gold rose half a percent to $1,721.59 an ounce by 0255 GMT. U.S. gold gained 0.4 percent to $1,721.90.

Technical analysis suggested that spot gold is expected to rise to a resistance zone of $1,734-$1,738 an ounce during the day, driven by an upward wave c, said Reuters market analyst Wang Tao.

INVESTMENT DEMAND UP; ETF HOLDINGS HIT RECORD HIGH

Holdings of gold-backed exchange-traded funds rose to a record high of 75.421 million ounces on Nov. 16, suggesting unabated investment interest.

Meanwhile, speculators raised their net long bets in U.S. gold in the week ended Nov. 13 from its lowest level in about three months hit a week earlier, the U.S. Commodity Futures Trading Commission said.

Net long positions in U.S. silver edged up to 27,802 contracts from 27,350 contracts a week earlier, its lowest since late August.

But Asia's physical market was sluggish as buyers shied away with prices settling back into a range-trade mode.

We see some fund buying interest and some stop-loss buying after prices broke above $1,720, but the physical demand is very very slow, said Peter Fung, head of dealing

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