* Gold finds support after Tuesday's almost 2 percent drop
* Selling eases as Obama threatens to veto Republican plan
* Open interest up as prices slump, new bearish bets eyed
* Coming up: U.S. GDP data, jobless claims Thursday
By Frank Tang
NEW YORK, Dec 19 (Reuters) - Gold steadied with little
overall change o n W ednesday, after dropping in the previous
session to a 3-1/2 month low, as U.S. legislators appeared far
from reaching deal to avert tax hikes and spending cuts which
could threaten to send the economy back to a recession.
Rallies in crude oil and a weaker dollar also helped the
metal find a firmer footing after Tuesday's technical sell-off
triggered by growing hopes that U.S. legislators are closer to
reaching a deal that would avert a fiscal crisis next month.
Selling pressure, however, dried up on Wednesday as progress
in talks in avoid a fiscal crisis appeared to stall. President
Barack Obama accused Republicans of digging in their heels due
to a personal grudge against him, while a Republican leader
called the president "irrational."
The uncertainty about the U.S. budget talks has dampened
investors' interest in gold. After Tuesday's sell-off, bullion
is on track to end the fourth quarter down almost 6 percent to
match its worst quarterly performance since the third quarter of
2008 at the height of the global economic crisis.
"The attraction of holding gold should wane as any agreement
that restores ... revenue increases and spending cuts over the
next 10 years would be an important step in getting the U.S.
fiscal house in order," said Edward Meir, metals analyst at
brokerage INTL FCStone.
Spot gold inched up a penny at $1,669.55 an ounce by
3:39 p.m. EST (2039 GMT).
U.S. COMEX gold futures for February settled down $3
cents an ounce to $1,667.70, with trading volume about 20
percent below its 30-day average, preliminary Reuters data
showed.
Open interest, a gauge of market activity, surprisingly
climbed 4,000 lots to 435,742 contracts on Tuesday even though
bullion prices dropped 2 percent, suggesting newly created
bearish bets are weighing on gold prices, traders said.
Silver dropped 1.5 percent to $31.16 an ounce.
STRUGGLING WITH UNCERTAINTY
Gold struggled to make headway amid uncertainty over the
budget negotiations on spending cuts of $600 billion and tax
hikes due next year which threaten to push the U.S. back into
recession.
Year to date, gold is up around 7 percent and set for a 12th
straight year of growth, driven by rock-bottom interest rates,
concerns over the financial stability of the euro zone and
diversification into bullion by central banks.
A 7 percent gain in gold this year would be well below an
average return of 16 percent over the past 12 years.
Among other precious metals, platinum inched down 0.2
percent to $1,587.40 an ounce and palladium was up 0.8
percent at $692 per ounce.
Underscoring prospect of a shortage, South Africa wants to
impose export curbs on minerals such as platinum and iron ore as
part of a drive by the government to create more jobs in
industry in the continent's biggest economy, a top official said
on Wednesday.
3:39 PM EST LAST/ NET PCT LOW HIGH CURRENT
SETTLE CHNG CHNG VOL
US Gold FEB 1667.70 -3.00 -0.2 1664.20 1677.80 140,702
US Silver MAR 31.116 -0.553 -1.7 31.075 31.870 41,621
US Plat JAN 1592.90 -0.80 -0.1 1588.10 1602.90 13,258
US Pall MAR 698.35 7.40 1.1 687.30 699.60 4,600
Gold 1669.55 0.01 0.0 1664.13 1676.61
Silver 31.160 -0.460 -1.5 31.060 31.780
Platinum 1587.40 -3.60 -0.2 1592.00 1604.20
Palladium 692.00 5.50 0.8 689.00 696.50
TOTAL MARKET VOLUME 30-D ATM VOLATILITY
CURRENT 30D AVG 250D AVG CURRENT CHG
US Gold 156,153 184,787 174,396 12.98 -0.12
US Silver 45,741 59,658 52,585 22.2 1.55
US Platinum 19,120 10,067 8,902 17.86 -0.55
US Palladium 4,602 6,238 4,737