US Comex February gold futures were up 0.25 percent at $1,650.00 after hitting a low around $1,636. Both spot gold and US futures were on track for a fourth straight weekly drop and have so far shed about 3 percent, the steepest fall since late June.
Gold fell on Thursday after US House of Representatives Speaker John Boehner failed to unite his Republican lawmakers behind a bid to extract concessions from President Barack Obama in so-called "fiscal cliff" talks. The latest development casts more uncertainty on talks to avoid sweeping tax hikes and spending cuts that could push the US economy into recession in 2013. In theory, such an outcome could lift gold's safe-haven status.
"If there is a timely agreement to avert the fiscal cliff, I think gold will gain with risk assets," said VTB Capital analyst Andrey Kryuchenkov. Mitsubishi analyst Matthew Turner said uncertainty over the fiscal cliff was deterring some gold investors.
"Nervousness over the fiscal cliff is possibly keeping some investors on the sidelines, as it is unclear how gold will react to the ongoing fiscal cliff talks," Turner said. UBS said in a note: "Gold's break of the 200-day moving average around $1,661 on Thursday spooked a lot of market participants and accelerated the sell-off. The technical picture doesn't look great, and neither does sentiment."
Despite the recent sell-off, gold is up about 5 percent for the year and set for a 12th straight year of growth, driven by rock-bottom interest rates, concerns over euro zone financial stability and diversification into bullion by central banks. Iraq made its first major move in years to boost gold reserves in recent months, joining central banks from emerging market economies such as Brazil and Russia in diversifying its foreign reserves.
Lower gold prices spurred buying in the physical market, keeping premiums steady at $1 to $1.10 an ounce above London prices. Among other precious metals, silver was down 0.27 percent at $29.86 an ounce. It has underperformed gold this week to fall 7.4 percent and is on track for its biggest monthly drop since May. Spot platinum was down 1.04 percent at $1,529.25 an ounce, while spot palladium was down 0.66 percent at $672.75 an ounce. Palladium has been the best performer of the precious metals so far this quarter, up 6.2 percent.