Gold steady; eyes on US fiscal woes, MidEast tension

Gold traded steady on Wednesday, lacking conviction to move out of its recent trading range as investors eye truce talks over Gaza and discussions on how to avert a fiscal crisis in the world's top economy.

An exchange of fire between Palestinians and Israelis continued as US Secretary of State Hillary Clinton held talks in Jerusalem seeking a truce. A failure to reach a cease-fire may support gold's safe-have appeal.

Gold has settled in a range between US$1,700 and US$1,740 an ounce in the past two weeks, after the re-election of US President Barack Obama cheered gold buyers who expect a continued loose monetary policy to keep gold attractive as an inflation hedge.

But Federal Reserve Chairman Ben Bernanke said on Tuesday the central bank does not have the tools to offset damage caused by the looming "fiscal cliff", a US$600bn tax hike and spending cut due to roll in early next year if the Congress fails to reach an agreement. 

Traders and analysts expect gold to remain rangebound while the budget talks continue, but say the longer-term outlook for gold remains upbeat.

"Gold seems well supported towards the US$1,700 level, and the longer-term story hasn't changed much," said Nick Trevethan, senior commodity strategist at ANZ in Singapore, adding that continuously robust demand from China and official sector buying will help support bullion prices.

Spot gold was little changed at US$1,726.60 an ounce by 0317 GMT.

US gold inched up 0.2 percent to US$1,726.70.

Physical demand in Asia remained lacklustre as potential buyers held the purse strings with the market showing no clear direction.

"Physical demand is very, very bad," said a Singapore-based trader, "If prices drop another US$30 to US$50, we will probably see investors and physical buyers return."

Investors are also watching a meeting of euro zone finance ministers, who are considering allowing Athens to buy back up to 40 billion euros of its own bonds at a discount as one of a number of measures to cut Greek debt to 120 percent of GDP within the next eight years.