Gold hits 3-week peak on US fiscal fears

Since the U.S. elections on Tuesday investors have become worried that Washington's politicians may struggle to find a compromise to cut the budget deficit before nearly $600 billion worth of spending cuts and tax increases kick in early in 2013.

Markets are also watching the debt ceiling, which needs to be raised to avoid a government shutdown.

Spot gold was at $1,732.09 an ounce by 1150 GMT, up 0.12 percent, having earlier touched a three-week peak of $1,737.60, while U.S. gold edged up 0.39 percent to $1,732.70.

A stronger dollar offset further upside in gold by making the yellow metal more costly in other currencies.

Gold prices hit a 2-1/2 week high on Wednesday after Obama's re-election gave markets a boost by ending weeks of political uncertainty, and since extended gains to the three-week peak as concerns over the fiscal cliff intensified.

This is a question of a safe haven bid for gold in times of economic uncertainty, said Nic Brown, head of commodities research at Natixis.

It is a recognition that the negotiations between Obama and Congress will be difficult. The two political parties come from diametrically opposed positions on this issue.

Brown said the Obama victory signalled a continuing environment of relaxed monetary policy, which was likely to underpin gold prices.

An Obama victory enhances the likely longevity of ongoing quantitative easing, he said.

Money

... contd.