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Mon 19 Nov 2012 10:30 AM

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Gold firms on soft dollar; US fiscal talks eyed

Gold gained on Monday after dropping by a percent last week as the dollar came off the previous session's highs

Gold firms on soft dollar; US fiscal talks eyed
Gold gained on Monday after dropping by a percent last week as the dollar came off the previous sessions highs.

Gold gained on Monday after dropping by a percent last week as the dollar came off the previous session's highs, while continued US discussions to avert an upcoming "fiscal cliff" also lent support.

US Republican and Democratic leaders have agreed on a framework to reform the tax code and government benefit programs next year, but first need to prevent across-the-board tax increases and spending cuts or the so-called fiscal cliff due to begin in January that could push the economy back into recession. 

Hope that US politicians would find common ground to steer clear of the fiscal cliff boosted Asian shares on Monday. The dollar index eased from a two-month high hit on Friday, making commodities priced in the greenback more affordable for buyers holding other currencies.

"The dollar is losing momentum for further rally after Friday's positive news on the fiscal talks, which will support gold," said Li Ning, an analyst at Shanghai CIFCO Futures.

The discussion between the two parties are unlikely go smoothly, which would potentially benefit gold, a traditional safe haven favoured by investors during political and economic uncertainty, she said.

While last week's report from the World Gold Council painted a lacklustre picture of the world's gold consumption, investment will continue to underpin prices, Li added.

Spot gold rose half a percent to US$1,721.59 an ounce by 0255 GMT. US gold gained 0.4 percent to US$1,721.90.

Technical analysis suggested that spot gold is expected to rise to a resistance zone of US$1,734-US$1,738 an ounce during the day, driven by an upward wave, said Reuters market analyst Wang Tao.

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