Gold was little changed on Wednesday, struggling to hold onto modest gains in the previous session as lack of clarity over the outlook for U.S. economic stimulus offsets a possible government shutdown in Washington.
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U.S. lawmakers are seeking to approve legislation to keep most government offices running at the end of this month, when budgets are due to expire, but they have yet to find common ground.
Investors, surprised by last week's decision by the Federal Reserve not to trim its bond-buying stimulus, are uncertain over the central bank's next steps and how to interpret mixed signals from policymakers about the strength of the economy.
"The markets don't really know where to go at the moment," Saxo Bank senior manager Ole Hansen said.
"If the budget talks continue to stall, that could obviously give a boost, but on the other side the focus on the tapering won't go at the moment as an October announcement won't make the Fed look good," he added.
Spot gold was steady at $1,322.50 an ounce by 1022 GMT. U.S. gold rose 0.5 percent to $1,323 an ounce after a three-day fall.
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Bullion has fallen about 20 percent this year - after 12 years of gains - while the U.S. Federal Reserve signalled in May that it would begin tapering its $85 billion in monthly bond purchases by the end of the year.
Traders said strong open interest for October COMEX options at around $1,320-$1,325 indicated that their expiry on Wednesday would probably help keep prices stable in coming sessions.
"Ahead of option expiry on the Comex this evening, I suspect we will fluctuate either side of $1,325," Marex Spectron said in a note.
However, data from the International Monetary Fund showed that central banks continued to increase gold reserves in August, with Russia buying nearly 13 tonnes of metal.
SUBDUED PHYSICAL DEMAND
When gold prices fell sharply in April and June, physical demand increased. But with continued volatility in prices and expectations of further declines, consumers in top markets China and India now are staying away, and premiums over London prices remained unchanged from last week's.
China, the second biggest gold consumer, is headed into a strong buying season, but market holidays next week for the National Day have kept things quiet, traders said.
Top consumer India is also expected to see a fresh bout of purchases after new rules on gold imports and exports were clarified, but buying is unlikely to return to the strong volumes seen in the first half of the year.
In other precious metals, silver fell 0.3 percent to $21.62 an ounce.
Spot platinum rose 0.4 percent to $1,424.20 an ounce and spot palladium edged up 0.2 percent to $718.47 an ounce.