* Late buying lifts market off nearly 4-month low
* Some see technical rebound if gold gets above $1,633
* Iraq boosts gold reserves for first time in years
(Recasts and updates throughout to close of U.S. trading
NEW YORK/LONDON, Dec 21 (Reuters) - Gold ended higher on
Friday after rebounding off its lowest price in nearly four
months, but the precious metal notched its steepest weekly
decline since June, as uncertainties over the U.S. budget
weighed on bullion prices most of this week.
Republican lawmakers in Congress withheld support on Friday
for a proposal to avert the so-called U.S. "fiscal cliff",
reinforcing concerns that a budget deal will not be reached
before the end of the year to hold off $600 billion in tax hikes
and spending cuts.
The dollar soared as it appeared as a better safe-haven to
investors than gold after the Republicans' action.
Prices of gold initially fell along with those of oil on
less demand from holders of the euro for those
dollar-denominated commodities. Bullion, however, recovered on
late buying support to settle slightly higher.
By 4:45 p.m. EST (21 45 GMT ) , the spot price of bullion
hovered near $1,656 per ounce. That was up from
Thursday's late trade of $1,647 and the day's low of $1,635.24,
although it was still below the 200-day moving average of
In the previous session, gold had plumbed a four-month low
On a weekly basis, bullion finished down 2.4 percent in its
biggest weekly decline since the week ended June 24.
In futures trading, gold's most-active February contract in
New York settled at $1,660.10, up 0.9 percent on the day
and off 2.6 percent on the week.
"Given today's trade, there's one constituency in the market
at least that seems to think bulls are getting ready to defend
gold more aggressively after the free fall earlier in the week,"
said Adam Sarhan at Sarhan Capital in New York.
"To me, a sustainable rally in gold can only take place when
the market gets back above its 200-day moving average. Barring
that, we could technically head to as low as $1,523."
MARKET PLAYERS "SPOOKED"
Swiss bank UBS appeared to agree, saying gold's break of the
200-day moving "spooked a lot of market participants".
"The technical picture doesn't look great, and neither does
sentiment," UBS said in a note.
Matthew Turner, analyst at Mitsubishi, said it would be
difficult to guess the direction in gold as long as the U.S.
budget talks remained unresolved.
"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.
Gold has reacted both positively and negatively to twists
and turns in the budget negotiations. Some analysts say a
stalemate in the talks boosts gold's position as a safe-haven.
Others argue that gold has increasingly become a risk asset
like any commodity and that a budget deal would give investors
in the precious metal clarity on direction.
In Friday's session, gold initially fell 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.
GOLD UP ON YEAR DESPITE RECENT SELL-OFF
Despite this week's sell-off, gold is up about 5 percent for
the year. It is also set for a 12th straight year of gains,
thanks to rallies in earlier months driven by rock-bottom
interest rates, euro zone worries and central banks' buying of
Among central banks attracted to bullion this year was Iraq,
which made its first major move in years to boost gold reserves,
joining peers from emerging market economies such as Brazil and
The price drop in recent months has also spurred buying in
physical gold, keeping premiums steady at $1 to $1.10 an ounce
above London bullion prices.
Among other precious metals, silver was flat at
$29.95 an ounce. It underperformed gold this week to fall nearly
7 percent and is on track for its biggest monthly drop since
Spot platinum was down 0.8 percent at $1,533 an
ounce, while spot palladium was flat at $677 an ounce.
Palladium has been the best performer of the precious metals so
far this quarter, up 7 percent.
(Reporting by Barani Krishnan and Daviud Brough; Additional
reporting by Lewa Pardomuan in Singapore; Editing by Veronica
Brown, Keiron Henderson and David Gregorio)