Gold bars. Picture: REUTERS
Gold bars. Picture: REUTERS

SINGAPORE — Gold posted minor gains on Monday on strength in the euro, but uncertainty about the US budget talks kept bullion’s advances in check.

Underscoring investors’ interest in the metal, holdings of gold-backed exchange-traded funds (ETFs) hit a record high and speculators raised their net length in gold for the third straight week.

The euro rose to a six-week high versus the dollar after upbeat China manufacturing data helped trigger stop-loss buying, and the dollar index dropped to a one-month low, making commodities priced in the greenback more attractive for buyers holding other currencies.

But the dragging negotiations in Washington to avert the fiscal cliff, $600bn worth of tax increases and spending cuts scheduled to roll in automatically in early 2013 that threaten to push the world’s largest economy back into recession, kept investors on tenterhooks.

"People are more cautious because there is no clear sign when the fiscal cliff will be solved," GoldSilver Central MD Brian Lan said in Singapore, adding that gold was likely to trade in the range of $1,700 and $1,750 before the market saw any clarity in the budget talks.

But gold could also gain from this uncertainty in the long term as Washington is likely reach a compromise, rather than a perfect solution, with the deadline drawing near — leading to expectations of more help on the monetary side from the central bank, analysts said. Monetary easing has been a main driver of gold prices in recent years.

"From what we’ve seen, it is not going to be easy to push through an agreement, which will be good for precious metals," Mr Lan said.

Spot gold inched up 0.2% to $1,718.90 an ounce by 7.25am GMT, after dropping a slight 0.3% in November.

US gold gained 0.4% to $1,718.90.

Echoing Mr Lan’s price outlook, Reuters market analyst Wang Tao expected spot gold to consolidate in the range of $1,705.64 to$1,730 an ounce for one or two trading sessions before seeking a direction.

Light physical buying in Asia

In the physical bullion market, dealers reported light buying interest in Asia.

"We saw some decent buying when prices broke below the $1,730-level, but overall there isn’t much demand for physical metal, as many are sidelined towards the end of the year," said a Hong Kong-based dealer.

Gold bar premium in Hong Kong was quoted in the range of 60c to $1.10 an ounce above London prices, versus 50c to $1 last week.

Sales of US American Eagle gold coins in November are set to be the strongest in 14 years as uncertainty surrounding the US fiscal crisis and the presidential election triggered safe-haven buying, dealers said.