Gold loses early gains after hitting new highs

Gold lost its early morning gains Wednesday after hitting a new high of $1,624 US an ounce as traders nervously monitored the U.S. debt ceiling debate.

Bullion for August delivery closed down $1.70 at $1,615.10 an ounce.

U.S. lawmakers are embroiled in a crisis over the U.S. debt ceiling. Unless a compromise can be reached, the world's largest economy is on track to default on its obligations by Aug. 2.

In times of uncertainty, investors tend to flock to gold. The precious metal has gained almost 15 per cent this year, adding to even stronger gains in 2010.

After hitting an almost four-year high on Tuesday above $1.07 US, the loonie slipped back below the $1.06 US level to close at 105.39 cents US, down 0.68 of a cent. Canada's currency has likewise benefited from U.S. dollar weakness in the past week, gaining almost a cent over the period.

"It's all about wealth preservation and the general abhorrence of sovereign risk problems," said Morgan Stanley currency analyst Ron Leven.

"Money's tending to gravitate to countries that don't have as much debt: Canada, Switzerland, Australia, Norway."

While the loonie moved slightly lower against its U.S. counterpart, the greenback was still lower against a slew of other major currencies on Tuesday, including the Japanese yen and the Swiss franc.

"Investors [want] the safety of fiscally responsible, resource-based economies," Scotia Capital's Camilla Sutton said in a note Wednesday.

Oil prices closed down $2.19 at $97.40 US a barrel after a report showed U.S. crude supplies unexpectedly jumped by four million barrels last week, suggesting demand may be weakening. Analysts had expected a drop of 2.3 million barrels.