PRECIOUS-Gold ends flat, U.S. budget talks in focus

* 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

Most Popular in Business