“Gold prices firmed on Thursday in line with stocks and other commodities, further retracing the previous day's sharp fall, as renewed optimism that a deal will be reached to resolve the U.S. fiscal crisis boosted appetite for assets seen as higher risk.
World shares hit three-week highs and commodities rose after House of Representatives Speaker John Boehner voiced optimism that Republicans could broker a deal with the White House to avoid a $600 billion crunch of spending cuts and tax hikes dubbed the "fiscal cliff".
U.S. stock index futures held gains and the dollar stayed under pressure after data showed weekly initial jobless claims fell for a second consecutive week and the economy grew faster than initially thought in the third quarter.
The implications of the fiscal cliff for gold are unclear. Protracted talks, which could heighten risk aversion, may be positive if they spark buying of the metal as a haven from risk, but in the short term, hopes for a quick resolution are benefiting gold as it keeps pace with stocks.
Spot gold was up about 0.4 percent above $1,725 an ounce, after tumbling 1.3 percent in the previous session due to a heavy bout of stop-loss selling. U.S. gold rose by more than $6 an ounce to trade near $1,723.
UBS said in a daily market note that despite the selling on Wednesday, it had observed little client appetite to follow the trend, suggesting that gold remained well supported.
Gold prices found good support at $1,720 an ounce, a key retracement of the decline from its October high of $1,795.69 an ounce to its November low at $1,672.24, and the location of its 30-day moving average.
Dealers said cheaper gold prices after the technically driven sell-off on Wednesday augured well for increased buying of physical metal.
Gold importers in India, the world's biggest buyer of the metal, sprang back in action, accumulating stocks in small quantities, as prices fell to hit their lowest in nearly two weeks.
Holdings of the SPDR Gold Trust, the world's biggest gold-backed exchange-traded fund, hit a record high for a second consecutive day, underlying buoyant investment interest.
Its holdings stood at 1,347.018 tons on Nov. 28, up nearly 11 tons so far this month and on course for its fourth month of straight gains.
Spot silver was up more than a percent above $34, while the gold-silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, stood at 51.1, hovering above a two-month low.
Spot platinum gained about 0.6 percent to hover near $1,621, and palladium advanced nearly one percent to change hands around $681.”