PRECIOUS-Gold rises towards $1,665 as stock markets firm
* Rising stocks reflect sharper appetite for risk
* Jitters over U.S. budget talks underpin gold
* Gold's premium over platinum shrinks to four-month low (Updates throughout, changes dateline, pvs SINGAPORE)
By Jan Harvey
LONDON, Jan 9 (Reuters) - Gold prices firmed on Wednesday as a rise in equity markets after a positive start to earnings season benefited assets seen as higher risk, and as traders awaited the next round of negotiations on the U.S. budget.
President Barack Obama and congressional Republicans face further budget battles in the next two months after brokering a deal in late December to avert devastating tax increases and spending cuts known as the 'fiscal cliff'.
Failure to reach agreement could mean a U.S. debt default or a downgrade in the U.S. credit rating, both of which could potentially benefit gold if they prompt investors to buy hard assets as a haven from risk.
Spot gold was up 0.3 percent at $1,663.30 an ounce at 1045 GMT, while U.S. gold futures for December delivery were up $1.40 an ounce at $1,663.60.
Expectations for seasonally strong physical demand for the metal in key Asian markets is also supporting prices.
"We find ourselves just ahead of Chinese New Year, which seasonally is one of the strongest times of the year for gold demand, and seven weeks away from the new deadline in the U.S. political system, and we're surprised at how low gold prices are," Natixis analyst Nic Brown said.
"If there was a reason for buying gold, you've got two good ones there," he said. "If the debt ceiling is used as a political bargaining tool, that would be a potentially ugly time for the U.S. credit rating."
"Our view is that gold prices are likely to trade lower as the year progresses, but there are some significant upside risks in the very near term," he said.
European shares climbed towards a new 22-month high on Wednesday after an encouraging start to the fourth quarter earnings season from U.S. aluminium giant Alcoa buoyed investor sentiment.
The euro held steady against the dollar, supported by expectations the European Central Bank will keep its interest rates on hold after a policy meeting on Thursday. Investors were also looking ahead to Spanish and Italian bond auctions on Thursday that will test appetite for peripheral euro zone debt.
Gold's rally was capped by strong resistance in the $1,660-1,665 region from its 200-day moving average and the 50 percent retracement of its move from last year's low in May to its October high.
"The metal continues to consolidate last week's down move from $1,694 to $1,627," ScotiaMocatta said in a note. "Our bias remains lower, with $1,627 our next line in the sand. Only a close back above previous range high of $1,671 would shift our short term view to neutral."
On the physical markets, gold buying tailed off in major consumer India after a strong start to the week on the back of Monday's price slide. Dealers in Mumbai said buyers were still awaiting a further price correction.
Trading volume on the Shanghai Gold Exchange's 99.99 physical gold contract also abated after hitting record levels earlier this week.
Holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, eased for a second day and are down 11 tonnes from the start of the year.
Among other precious metals, silver was up 0.3 percent at $30.43 an ounce, while spot platinum was up 0.8 percent at $1,586.50 an ounce and spot palladium outperformed to rise 2.3 percent at $683.50 an ounce.
Gold's premium over platinum, a historically unusual phenomenon that it has managed to hold since the first quarter of last year, fell to its lowest since mid-September on Wednesday as the white metal clawed back some ground.
Technical analysts at Societe Generale said in a note the platinum/gold spot ratio is testing graphic resistance at 0.96.
"Should 0.96 be surpassed, an inverted head and shoulders (bullish pattern) would be confirmed and therefore lead the ratio towards the long-term resistance region of 1.00/1.02," it said. "The 14-day relative strength index is also at resistance." (Editing by Alison Birrane)
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