December 5, 2012 / 3:10 AM / in 5 years

PRECIOUS-Gold bounces from 1-month low, US budget talks drag

* Gold to fall towards $1,678-technicals 
    * Coming Up:U.S. ADP employment report Nov; 1315 GMT

 (Updates prices, adds quotes)
    By Lewa Pardomuan
    SINGAPORE, Dec 5 (Reuters) - Gold edged up on bargain
hunting on Wednesday, but still hovered near its weakest in a
month as talks between the White House and Congress to avoid
year-end tax hikes and spending cuts showed little progress and
kept most investors at bay.
    The U.S. economy could slip into recession if the two
parties failed to reach a deal to avoid a year-end budget
crisis. President Barack Obama dangled the possibility of
lowering tax rates in 2013 with a broad U.S. tax code revamp,
but stood firm on insisting rates for the wealthiest must rise
as part of a budget deal with Congress. 
    Gold rose $3.47 an ounce to $1,700.21 by 0230 GMT    
 after falling to $1,690.64 on Tuesday, its weakest since Nov.
6, on heavy fund liquidation and options-related selling.
    "I think there are a few scenarios that we could look at.
They may not come to a real, long-term deal. So we are expecting
that there will be delays, which mean they will extend the
deadline until they come to an agreement," said Lynette Tan,
senior investment analyst at Phillip Futures in Singapore.
    "If this happens, gold will probably be pressured in the
short term until the reality that delaying the solution will
ultimately hurt the economy further." 
    U.S. gold futures for February added $6.10 an ounce
to $1,701.90.     
     Worries over whether the United States could avert the
so-called fiscal cliff, a series of automatic tax hikes and
spending cuts worth $600 billion that will begin taking effect
in January unless Congress acts, weighed on shares in Asia.
    "If the U.S. really falls off the 'fiscal cliff', we are
likely to see some buying of gold for store of value and also on
the outlook that the U.S. dollar may depreciate further," said
Tan at Phillip Futures. 
    "This is likely to give some support to gold." 
    News that South Korea's central bank had purchased 14 tonnes
of gold in November using its foreign reserves in order to
spread its portfolio risks was largely ignored. 
    "We continue to see a risk of further sharp moves in gold
after the dead cat bounce yesterday," the ANZ said in a report. 
     "We are biased towards a near-term technical decline
targeting $1,670 but remain constructive on medium term
    The euro hovered at seven-week highs against the
dollar on Wednesday, while oil was mostly steady. Concerns about
the health of the U.S. economy kept investors on the edge.
  Precious metals prices 0230 GMT
  Metal             Last    Change  Pct chg  YTD pct chg    Volume
  Spot Gold        1700.21    3.47   +0.20      8.72
  Spot Silver        33.03    0.12   +0.36     19.28
  Spot Platinum    1583.24    4.14   +0.26     13.66
  Spot Palladium    677.50   -0.20   -0.03      3.83
  COMEX GOLD FEB3  1701.90    6.10   +0.36      8.62         6168
  COMEX SILVER MAR3  33.10    0.29   +0.87     18.56         1996
  Euro/Dollar       1.3106
  Dollar/Yen         81.97
  COMEX gold and silver contracts show the most active months
 (Editing by Himani Sarkar)
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