Gold near flat, awaits House debt vote

A gold bar carrying the Euro sign is seen during the European Central Bank's Euro Exhibition organised by the Romania's Central Bank in Bucharest March 10, 2011.

NEW YORK (Reuters) - Gold paused on Thursday after the previous session's run to a record high, as investors sidelined themselves ahead of a close U.S. House vote on a controversial Republican deficit-reduction plan.

Silver dropped over 1 percent as Wall Street rose ahead of the vote on a proposal presented by U.S. Rep. John Boehner, the top Republican in Congress.

If it passes the Republican-controlled House, it faces defeat in the Democrat-dominated Senate, after which hopes are pinned on compromise bill emerging to ease worries about a U.S. government default or ratings downgrade.

Gold remains up around 8 percent in July on concerns over the euro zone debt crisis and uncertainty ahead of the August 2 deadline to raise the $14.3 trillion U.S. debt ceiling. It could tumble if a debt-ceiling deal eases fears in other financial markets and investors perceive the related spending cuts and tax increases as deflationary, analysts said.

"The market as a whole is starting to get more optimistic that there will be some resolution of the US debt ceiling. If we were to see a resolution, there will be a short-term pull back of the precious metals because of the more certainty," said James Rife, an assistant portfolio manager at Haber Trilix Advisors, which manages $2 billion in assets.

Spot gold was down 41 cents at $1,612.59 an ounce by 2:08 PM EDT (1808 GMT). It hit a record $1,628 an ounce on Wednesday, its second all-time highs this week, before correcting sharply later in the day.

U.S. gold futures for August delivery settled down $1.70 an ounce at $1,613.40. Volume was heavy for a second day, as the market stayed volatile after investors exercised a large number of in-the-money calls at Tuesday's option expiration.

Silver was down 1.3 percent at $39.67 an ounce.

In early trade, gold briefly rose above $1,620 an ounce. But it quickly retreated as investors grew less risk-averse after news that U.S. jobless claims hit a three-month low last week while contracts to buy existing homes rose in June.

On weekly charts, a monthly close above $1,557.75 would suggest that July will be a bullish outside month, confirming a 2011 target between $1,700 and 1,750, CitiFX strategists said.

More bullion investors are using put options as part of their strategies to lock in profits made in the underlying gold futures, floor traders said.

James Steel, chief commodity analyst at HSBC, said that the magnitude of gold's pullback depends on the nature of the debt ceiling agreement.

"One that is profound and with long-reaching implications will have a more significant correction. If it's seen as just being as stop-gap measures, I think the correction will be more limited," Steel said.

Spot platinum was up 0.1 percent at $1,785.99, while spot palladium was up 0.2 percent at $824.25.

Traders will watch pay talks in August between unions and Anglo American Platinum, the world's No. 1 producer. South Africa is the world's largest platinum producer accounting for three-quarters of global output.

(Additional reporting by Jan Harvey in London; Editing by Alden Bentley)