* 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
By Jan Harvey
LONDON, Jan 9 Gold held steady on Wednesday with
background support from firmer equities, as a strong start to
the earnings season benefited higher risk assets, leaving the
focus on U.S. budget talks.
U.S. 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 may
potentially benefit gold if they prompt investors to buy hard
assets as a haven from risk.
Spot gold was up 0.1 percent at $1,660.70 an ounce at
1240 GMT, while U.S. gold futures for December delivery
were broadly flat at $1,660.30.
Expectations for seasonally strong physical demand for the
metal in Asian markets are 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
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.
Silver was down 0.1 percent at $30.31 an ounce, while
spot platinum was up 0.7 percent at $1,584.50 an ounce
and spot palladium outperformed to rise 1.8 percent at
$676.50 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
(Editing by William Hardy)