RTRS: PRECIOUS-Gold steadies above 3-1/2-month low as stocks rise
* Progress in U.S. fiscal talks boosts stocks, euro
* Gold recovers from lowest since Aug. 31 at $1,661/oz
* Indian gold buyers take advantage of price dip
(Adds trade comment, updates prices)
By David Brough
LONDON, Dec 19 (Reuters) - Gold steadied on Wednesday, after
sliding to 3-1/2-month lows in the previous session, benefiting
from a rally in equities and the euro to multi-month highs on
progress in U.S. fiscal talks and well received German economic
data.
European equities reached a new high for the year, and world
shares hit 17-month peaks on hopes that U.S. politicians will
reach a budget deal, while the euro hit a 7-1/2-month high
versus the dollar following German business confidence data.
Spot gold was down 0.23 percent at $1,665.71 an
ounce at 1514 GMT, while U.S. gold futures for February
eased $2.70 an ounce to $1,668.00.
Spot prices hit their lowest since Aug. 31 on Tuesday at
$1,661 an ounce, with traders citing a break through key chart
levels and activity on the options market as fuelling the move.
"There's been a lot of interest in protecting against
downside risks," Standard Chartered analyst Daniel Smith said,
referring to the options-related trading.
Gold has traded closely in line with stocks this year and
tends to benefit from weakness in the dollar, which makes assets
priced in the U.S. unit cheaper for other currency holders.
But it has struggled to make headway as expectations grew
that negotiations to avert the so-called 'fiscal cliff' - $600
billion in spending cuts and tax hikes due next year, which
threaten to push the U.S. back into recession - will be
successful.
"The macro background is improving, and this is creating
headwinds for gold," Smith said.
"The safe haven appeal of gold is diminishing."
U.S. House of Representatives Majority Leader Eric Cantor
said he expected a vote on a Republican offer to avert the
crisis on Thursday and that he would have enough votes to pass
the measure.
Analysts say a quick resolution of the fiscal crisis could
in the long-term hurt gold, as it would erode the metal's appeal
as a haven from risk and boost interest in other assets.
"As the macro environment improves, especially provided the
'fiscal cliff' is avoided, gold investors in developed economies
will increasingly look to diversify from bullion and into
riskier assets where returns are better, given the ongoing
economic recovery and better-than-expected U.S. data," VTB
Capital said in a note.
"Once again, it will not happen overnight and we still see
bullion benefiting from relative dollar weakness next year.
However ... the longevity to the ongoing quantitative easing is
set to be increasingly questioned, while bullion is set to start
losing its shine to other metals in the precious complex."
RENEWED PHYSICAL BUYING
The weakness in the gold price in the past few weeks has
triggered renewed physical buying, particularly in Asia, Swiss
bank UBS said in a note on Wednesday.
"Our flows to India indicate above-average demand this week
and in China, strong volumes continue on the Shanghai Gold
Exchange, with the month-to-date daily average turnover at
11,498 kg versus the 12-month rolling average of 7,842 kg," it
said. "Physical buying out of Europe has also been notable."
Physical demand from China, which is neck-and-neck with
India as the world's top gold consumer, is expected to pick up
ahead of the Chinese New Year in February.
Gold importers in India took advantage of lower prices to
buy, as a stronger rupee helped push gold to a two-week low.
Gold is on track to drop around 5 percent this quarter, its
worst performance since the third quarter of 2008 at the height
of the global economic crisis.
But for the year, gold is up around 7 percent and set for a
12th straight year of growth, driven by rock-bottom interest
rates, concerns over the financial stability of the euro zone
and diversification into bullion by central banks.
A 7 percent gain in gold this year would be well below an
average return of 16 percent over the past 12 years.
Among other precious metals, platinum was down 0.13
percent at $1,588.99 per ounce, and spot palladium was up
0.63 percent to $690.81 per ounce.
South Africa wants to impose export curbs on minerals such
as platinum and iron ore as part of a drive by the ruling
African National Congress to create more jobs in industry in the
continent's biggest economy, a top official said on Wednesday.
