The dollar, which often moves in the opposite direction of commodities, edged higher by 2:00 pm EST (1900 GMT), erasing losses in the euro. "Given the condition of other markets and the relative strength of the dollar, gold is doing pretty fine," said James Dailey, portfolio manager at TEAM Financial Asset Management in Pennsylvania. The spot price of gold stood at $1,656.99 an ounce, versus late Friday's level of $1,656.61.
The spot price could test support at $1,631, as it may have completed a rebound from a December 20 low of $1,635.09, Reuters market analyst Wang Tao said. In gold futures, the benchmark February contract in New York settled down 60 cents at $1,659.50. Volume in gold futures was less than a quarter of the 30-day norm, with metals markets on New York's COMEX closing earlier than usual for Tuesday's Christmas Day holiday.
Gold has been in both risk-on and risk-off modes lately, with investors undecided about direction for the precious metal due to the so-called US "fiscal cliff." Dailey of TEAM Financial said gold is likely to turn into a safe-haven again next year as the United States appeared on course to another credit rating downgrade after Standard & Poors cut the country's "AAA" rating to "AA" in August 2011. Fitch Ratings said last week it could issue a US downgrade if the December 31 deadline for resolving the fiscal cliff is not met.
"None of the budget proposals being put forward now is bringing the US any closer to fulfilling the requirements of the credit rating agencies; so another downgrade is almost certain even if we get past the fiscal cliff, and that should be good for gold," Dailey said. Since the turn of the century, gold has experienced one of the longest bull runs in a commodity, with bullion prices set for a 12th straight year of gains.
Much of this year's gains were aided by ultra-loose monetary policy by the world's leading economies, bullion buying by central banks trying to diversify foreign reserves and concerns over the financial stability of the euro zone. Among other precious metals, silver was down 0.3 percent at $29.88 an ounce, platinum slipped 0.3 percent to $1,529.50 and sister metal palladium rose nearly 1 percent to $683.13.