Gold rebounded from intraday lows on Wednesday after last-minute talks to end the US "fiscal cliff" crisis showed signs of progress.
A weaker US dollar also lifted gold, which was likely to rise further as equities firmed on hopes the House of Representatives would vote to avert tax rises and spending cuts that are technically already in force, and prevent the country from plunging into recession.
Gold was steady at $1,675.50 an ounce by 0232 GMT after hitting a low around $1,670. Gold ended up around 7% in 2012 - the 12th straight year of gains for the precious metal, which makes it one of the longest bull runs ever for a commodity.
"I still believe at the end of the day the talks on the fiscal cliff should go through but of course not without some twists and turns," said Brian Lan, managing director of GoldSilver Central Pte Ltd in Singapore.
US gold for February was steady at $1,676.50 an ounce.
After a day of deliberation, there appeared to be enough Republicans in the House ready to back a Senate bill that would raise taxes on the wealthiest Americans and close a crucial chapter of the budget dispute that has consumed Washington for months.
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Strictly speaking, the United States went over the cliff in the first minutes of the New Year because Congress failed to produce legislation to halt $600 billion of tax hikes and spending cuts scheduled for this year that started kicking in on January 1.
A failure to clinch a deal may spur safe-haven buying of gold, but since many investors have both equities and gold in their portfolios, the metal may also track stock markets higher if an agreement is reached.
"Whatever happens in Washington, we suspect gold will likely do better over the next few weeks as the colossal failure of political will to get America's fiscal house in order should provide fodder for the gold bugs to bid prices higher," Edward Meir, metals analyst at brokerage INTL FCStone, said in a note.
Asian stocks started new year trading with tentative gains, while the dollar fell on Wednesday.