Gold prices rose early on Wednesday on gains in the crude oil market amid rising geopolitical tensions, and traders continued to focus on how the United States can avoid a debilitating fiscal crisis at the end of the year. News that Israel killed the military commander of the Palestinian group Hamas in a missile strike on the Gaza Strip triggered safe-haven demand, while scenes of violent anti-austerity strikes in Spain and Italy prompted investors to buy gold as a hedge against economic uncertainty.
Bullion investors will closely watch a White House press conference later on Wednesday when President Barack Obama is expected to be grilled about negotiations to avert the so-called fiscal cliff. "Our short-term outlook continues to call for further gains in gold, but we would not be surprised by a rather substantial correction once a fiscal-cliff agreement is reached," said Edward Meir, a metal analyst at futures brokerage INTL FCStone.
The market awaited minutes from the latest Federal policy meeting in October, to be released later Wednesday, for more clues from the US central bank regarding its monetary outlook. Spot gold rose 0.3 percent to $1,730.90 an ounce by 12:04 pm EST (1704 GMT), near a three-week high of $1,738.66 reached last Friday.
US COMEX gold futures for December delivery were up $6.20 at $1,731, with trading volume on track to finish below its 250-day average, preliminary Reuters data showed. A 1.5 percent gain in Brent crude futures after the Israeli air strike and higher grain prices lifted gold. The latest attacks marked the biggest escalation between Israel and Gaza militants since a 2008-2009 conflict, and the incident appears to be pushing the two sides to the brink of a new war.
Gold prices initially fell, tracking weaker US equities. US retail sales fell in October for the first time in three months as Superstorm Sandy slammed the brakes on automobile purchases, suggesting a loss of momentum in spending early in the fourth quarter. Silver rose 0.8 percent to $32.72 an ounce.
The impending "fiscal cliff" preoccupied investors who pondered how long Washington will take to find compromises and avoid a series of mandated tax increases and spending cuts to be triggered early next year that could send the world's largest economy back into recession.
"If we have brinkmanship, and we don't see a resolution, that could put downward pressure on gold," said Daniel Brebner, an analyst with Deutsche Bank. Platinum group metals were higher for a second day, rallying on a bullish forecast that production outages earlier this year could result in a supply deficit. Platinum climbed to $1,597.50, its strongest performance since October 23, and later traded up 0.2 percent at $1,584.70. Palladium hit a session high of $647.22, its strongest since October 18. It was last up 0.8 percent at $637.72.
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