* Gold to retest support at $1,631 - technicals
* Iraq boosts gold reserves, 1st time in years -IMF
* Coming up: CFTC commitment of traders data; 1930 GMT
By David Brough
LONDON, Dec 21 (Reuters) - Gold was near a four-month low on Friday and set for its steepest weekly loss since June as investors were discouraged by a weaker euro and stalled U.S. budget talks.
Bullion stood at $1,649.20 per ounce by 1411 GMT, barely changed on the day after earlier hitting a low of $1,635.24. It touched a four-month low of $1,635.09 on Thursday.
U.S. Comex February gold futures were up 0.25 percent at $1,650.00 after hitting a low around $1,636.
Both spot gold and U.S. 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 U.S. 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 U.S. 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.
"I think platinum group metals will outperform gold, as they have much better supply side fundamentals," he added, referring to expectations for increased demand for platinum and palladium as the global economy recovers.
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."
Global stock markets weakened on Friday and the euro slipped due to the setback in U.S. budget talks and to evidence of Europe's ongoing economic difficulties, including a drop in German consumer morale, a revision of UK growth figures and a downgrading of Sweden's economic forecasts.
GOLD PRICE SET FOR ANNUAL GROWTH
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.