Gold slipped on Thursday as oil pared gains and share prices fell, but tension in the Middle East and worries about the U.S. fiscal cliff could still spur buying from investors and boost the metal's safe-haven appeal in times of uncertainty.
The so-called fiscal cliff -- a combination of government spending cuts and tax rises due to go into effect in early 2013 unless Congress acts -- could reduce the U.S. budget deficit but may also could tip the economy back into recession.
Gold hit an intraday low of around $1,722 an ounce and was at $1,725.94 by 0256 GMT, flat from Wednesday. It rallied to a three-week peak of around $1,738 on Friday, when investors bought the metal on expectations U.S. monetary policy will remain loose after President Barack Obama's re-election.
I guess somebody wants to sell gold because of lower stock markets. It's just like a kind of risk-off move, said Yuichi Ikemizu, branch manager for Standard Bank in Tokyo.
I'd rather look at the upside than the downside. I think people are basically bullish, said Ikemizu, referring to a rebound in gold prices, which fell below $1,700 last week.
U.S. gold for December dropped $3.70 an ounce to $1,726.40.
Obama said on Wednesday that Republicans would have to agree to raise taxes on the wealthy as the first step in a budget deal that would prevent a dysfunctional Washington from pushing the economy into recession.
The euro traded above a 2-month low on Thursday, while Asian stocks mostly fell as investors reacted to the prospect of drawn-out negotiations over the looming U.S. financial crisis.
Oil was steady above $86 a barrel after rising by the most in a week on renewed worries of supply disruption as Israel launched a major offensive against Palestinian militants, while a weak global economic outlook kept gains in check.
I think sentiment is still bullish because of the tension in the Middle East and also the fiscal cliff. I think the market is looking to touch $1,750, while the downside is $1,720 said a dealer in Hong Kong.
I don't think we are going to break $1,700, unless of course there's a strong rally in the dollar.
The U.N. Security Council will hold a closed emergency meeting on Wednesday night to discuss Israeli strikes against the Gaza Strip as Israel threatened a wider offensive in the Palestinian enclave to stem rocket salvoes