Differences over how to resolve the so-called "fiscal cliff" narrowed significantly Monday night as President Barack Obama made a counter-offer to Republicans that included a major change in position on tax hikes for the wealthy, according to a source familiar with the talks.
Hopes that a deal may be imminent boosted assets seen as higher risk, with which gold has been closely correlated this year. As well as the rise in shares, oil prices climbed more than 0.5 percent, copper firmed and the euro strengthened. Daniel Briesemann, analyst with Commerzbank, said gold investors were bargain hunting on the dips.
"There are continuous inflows into gold ETFs," he said. "This clearly shows interest from long-term investors." Nic Brown, Natixis analyst, said expectations that a US budget compromise was getting nearer, underpinned gold. Spot gold was at $1,697.31 an ounce at 1424 GMT, little changed from $1,697.65 late on Monday, while US gold inched up 0.03 percent to $1,698.70. Silver was up 0.31 percent at $32.36 an ounce.
A backdrop of easy monetary policy from the US Federal Reserve and other central banks should provide support for prices, analysts said, as investors worried about currency debasement and rising inflation flee to hard assets. Gold prices hit their highest in a month last week after the Fed announced a fresh round of monetary stimulus in the form of a pledge to buy $45 billion a month in longer-term Treasuries. They quickly dropped back, however.
Physical demand from China, which is neck-and-neck with India as the world's top gold consumer, is expected to pick up ahead of the Chinese New Year in February, Natixis's Brown said. "We are entering a period of seasonally strong demand from China, and this can support gold prices between now and the beginning of the Chinese New Year in February."
Gold wholesalers in India held off from fresh buying on Tuesday, despite the ongoing wedding season, as prices rose for a third session to their highest in a week. Among other precious metals, platinum was up 0.27 percent at $1,606.75 per ounce, and spot palladium eased 0.32 percent to $694.25 per ounce.
HSBC raised its average price forecast for platinum in 2013 to $1,710 per ounce from $1,625, and said it expected the metal to record a second consecutive annual deficit next year of 256,000 ounces. It cited supply disruptions in major producer South Africa, which has seen a wave of strikes leading to deadly violence this year, as a major factor.
"The possibility exists for further disruptions to production in South Africa. Additionally, the long-term challenges of low prices for platinum make a sizable amount of current production uneconomical," it said. "This leads us to believe that higher prices are necessary to sustain production."