The metal rebounded from the previous session's one-month low but gains faced resistance from technical selling around its 100-day moving average near $1,700 an ounce. Funds have been liquidating of late as open interest in US gold futures, a gauge of market activity, fell to a three-month low.
"The loss of all of this open interest signals the institutions are moving to the sidelines until after an announcement on the 'fiscal cliff'," said George Gero, vice president of RBC Capital Markets, referring to talks aimed at resolving a potential US budget crisis at the year-end. Spot gold was up 0.4 percent at $1,699.71 an ounce by 1:53 pm EST (1853 GMT).
US COMEX gold futures for February delivery settled up $8 an ounce at $1,701.80, with trading volume set to finish below its 30-day average, preliminary Reuters data showed. The metal also tracked gains in US equities after data showed the number of Americans filing new claims for unemployment benefits last week fell back to the pre-Superstorm Sandy range.
"There is a preference for riskier assets and interest-bearing assets," Andrew Cole, fund manager with Baring Asset Management, said. Investors' appetite for physical gold and physically backed investment products remained sharp, with holdings of the largest gold exchange-traded fund, SPDR Gold Trust, at a record high.
Demand in India, one of the world's biggest buyers of gold, was also firm as the rupee climbed. Among other precious metals, silver was up 0.5 percent at $33.02 an ounce. Platinum rose 0.9 percent to $1,590.50 an ounce, while palladium climbed 1.2 percent to $690.50 an ounce.