Singapore: Gold regained strength on Wednesday as a weaker US dollar spurred buying from jewellers, but prices were still within sight of an almost four-month low given signs of progress in US fiscal talks that dented bullion's safe-haven appeal.

Some investors have shifted into equities as optimism a deal could be reached soon to avert the "fiscal cliff" of tax hikes and spending cuts that threaten to plunge the United States into recession fuelled an appetite for riskier assets.

Gold added USD 6.16 an ounce to USD 1,675.70 by 0658 after falling to it lowest since August at USD 1,661.01 in the previous session on technical selling.

"We are likely to see some technical buying. Our support level is now at about USD 1,640. I don't think any further buying will be sustainable," said Lynette Tan, senior investment analyst at Phillip Futures in Singapore.

A US deal on the "fiscal cliff" could eventually lift the US dollar and prompt investors to turn to other risk assets such as stocks, hurting demand for gold, she said.

"We will see a lack of safe-haven demand." US House of Representatives Majority Leader Eric Cantor said he expects a vote on a Republican offer to avert the "fiscal cliff" on Thursday, and he expects to have enough votes to pass the measure.

US gold futures for February rose USD 6.50 an ounce to USD 1,677.20.       

"The gold price has re-visited lows from early November (USD 1,675 an ounce), representing a possible bottom in a range if this level holds," said Deutsche Bank in a report.

"If not, and if more selling pressure is forthcoming, we expect that the gold price could potentially revisit mid-summer lows of USD 1,600 an ounce."

Gold, traditionally an inflation hedge, is on track to drop around 5 percent this quarter, worst since the third quarter of 2008 at the height of the global economic crisis, marked by the bankruptcy filing of Lehman Brothers.

But for the year, gold is up around 7 percent and set for a twelfth straight annual growth driven by rock-bottom interest rates, concerns over the financial stability of the euro zone and diversification into bullion by central banks.

"We're seeing better demand on Tuesday, but some customers have also cut their positions after prices fell back below USD 1,700.

Indonesia is a little bit active. Typically, they are quiet," said a physical dealer in Singapore. "The price comes up, yet the Indonesians are buying.

Thailand has been buying recently, so I think they are quite long. Premiums are between USD 1 and USD 1.10. It's little changed."

In other markets, Asian shares and the euro rose to multi-month highs, while the dollar index slipped, making dollar-priced commodities cheaper for holders of other currencies.


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