PRECIOUS-Gold eases, focus on U.S. budget talks

Last Updated: Thu, Dec 27, 2012 15:50 hrs

* Targets $1,397-$1,447 range in 3 mths -technicals

* U.S. poised to go off fiscal cliff - Senator Reid

* India gold demand firm as jewellers stock up

By David Brough

LONDON, Dec 27 (Reuters) - Gold extended losses slightly after positive U.S. jobs data on Thursday, and stayed in sight of last week's four-month lows as investors focused on talks to prevent the U.S. economy from plunging into recession.

The number of Americans filing new claims for unemployment aid fell last week to nearly its lowest level in 4 1/2 years, a possible sign that employers have picked up the pace of hiring.

"The effect the jobs data had on gold was via a firming of the dollar," said Ross Norman, chief executive of precious metals trader Sharps Pixley.

Gold extended losses briefly after the U.S. jobs data, and was down $4.73 an ounce to $1,654.76 by 1518 GMT. It has come off a 4-month low of $1,635.09 struck last Thursday, but remains well below a record high of around $1,920 hit in September 2011.

U.S. gold for February fell 0.32 percent to $1,655.40 an ounce.

Favourable U.S. economic data could signal prospects for an end to the ultra-loose monetary policy that has supported gold prices.

"The better the data the more the fear that monetary easing will ultimately come to an end," said Credit Suisse analyst Tobias Merath.

"Every time there is this fear that monetary easing may not be continued to the extent that was previously expected there can always be a little bit of selling pressure."

Gold prices have benefited from the loose monetary policy of leading central banks because of gold's appeal as a hedge against inflationary fears.

Gold investors kept a close eye on talks to avert a fiscal crisis in the United States.

President Barack Obama was flying back to Washington on Thursday and the top Republican in Congress planned to speak with House of Representatives lawmakers as the clock ticked toward a year-end deadline for action to avert the looming "fiscal cliff" tax hikes and spending cuts.

The United States faces $109 billion in across-the-board spending cuts starting in January unless a deal is reached to either replace or delay them. Democrats want to switch the spending cuts to tax increases for the most part.

"If the politicians reach an agreement on the fiscal cliff, the dollar could suffer and there could be more investment into gold," said Afshin Nabavi, head of trading at MKS Finance, referring to gold's behaviour as a risk asset similar to shares.

He said he expected gold to trade in a range of $1,650-1,670 per ounce in the near term.

A failure in the fiscal talks could spur safe-haven buying, boosting gold.

Senate Majority Leader Harry Reid on Thursday criticized Republicans in Congress for refusing to go along with any tax increases as part of a fiscal cliff remedy as he sketched out a pessimistic outlook for this week.

For the year, bullion is up around 6 percent, on track for a twelfth straight year of gains on rock-bottom interest rates, concerns over the financial stability of the euro zone, and diversification into bullion by central banks.

Spot gold is expected to drop into a range of $1,397-$1,447 per ounce over the next three months, as indicated by its wave pattern and a Fibonacci retracement analysis, according to Reuters market analyst Wang Tao.

In other markets, world shares and the euro edged higher as U.S. lawmakers prepared to resume negotiations, while the yen hit a two-year low on the prospect of drastic monetary easing.

Gold demand in India, the world's biggest buyer of the metal, remained strong on Thursday as jewellers were restocking for a festival, although retail demand was weak.

Randgold Resources Plc has cut the production forecast for its troubled Ivory Coast gold mine after a fire over Christmas at the project's mill.

Silver was down 0.17 percent to $29.92 an ounce, platinum eased 0.48 percent to $1,525.75 and palladium rose 2.3 percent to $705.47 an ounce.

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