Gold's rally to two week highs after US President Barack Obama's re-election fizzled out on Wednesday, with the dollar seen as a safe-haven as investor focus shifted quickly to US fiscal woes. Rallying with world shares, gold jumped to around $1,731 an ounce, its strongest since October 23, but later lost traction as the dollar built momentum to last stand at $1,713.14 at 1530 GMT, down 0.1 percent on the day. US gold for December was down 60 cents at $1,714.40.
The market is well below a record high around $1,920 struck in September last year. Obama won a second term in the White House, overcoming deep doubts among voters about his handling of the US economy to score a clear victory over Republican challenger Mitt Romney.
Gold had rallied to an 11-month high above $1,795 an ounce on October 5 after the US Federal Reserve announced a third round of aggressive economic stimulus in September. Gold prices then drifted back to nine-week lows around $1,672 due to uncertainty over the policy impact of the US election. Analysts and investors were already shifting focus to the fiscal challenges facing Obama in his second term, and divided on the impact for bullion.
A Congress split between the two parties will keep open the likelihood of messy negotiations to avert the "fiscal cliff" - nearly $600 billion worth of spending cuts and tax increases that risk pushing the economy into deep recession. Andrew Cole, fund manager with Baring Asset Management, said, "I think people would be less inclined to own US stocks and bonds in an event where they don't know how policy will be fixed." However, he saw an eventual return to more tolerance of risk, which would see gold weaken.
Bayram Dincer of LGT Capital Management said a resolution could occur before the deadline at the end of 2012, auguring for a slip in the dollar against major currencies and a rise in gold prices. Dincer said gold could stand at around $1,800 an ounce by the end of 2012 and some $1,900 by the end of the first half of 2013, underpinned by a continuing relaxed US monetary policy and possible further quantitative easing.
Gold importers in India, the world's biggest buyer of the yellow metal, slowed purchases in the peak festival season as prices steadied near their highest level in more than two weeks. The festive season in main gold consumer India peaks in November with Diwali, the Hindu festival of lights. Weddings also take place at this time, with gold jewellery forming a key part of the dowry daughters receive from their parents.
But gold imports to India could fall to 550 tonnes next year, after touching 967 tonnes in 2011, as high inflation and prices bite into disposable incomes of consumers, the head of a trade body said on Tuesday. South Africa's net gold and foreign exchange reserves fell to $48.626 billion at the end of October from $48.748 billion in September, data from the Reserve Bank showed on Wednesday.
More of the world's rich are moving their gold and other valuables away from the economic turmoil in the West to Asia, prompting precious asset shipping specialist Malca-Amit to rapidly expand its storage capacity in the prosperous region. In other precious metals, spot platinum was down 0.31 percent at $1,545.25 and spot palladium fell 0.43 percent to $610.97. Silver reversed earlier gains, and fell 0.56 percent to $31.77 an ounce.
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