How to stop ambient occlusion texture baking in cycles from only having black and white color output? My ambient occlusion bake in cycles for a sword has only black and white color and none of the recognizable grey gradient shading that goes with ambient occlusion. I am using the 'selected to active' option so I've got my low res and high res with detail models all set up. I followed this 'answer', How do I bake a texture using Cycles bake, in achieving my setup.

Here is an image of the bake.



Here is an image of the high res model.



Here is an image of what I'm thinking the AO should look like. It is from a tutorial I am doing on this sword.



Now the sword handle bands from the high res model extrude further out than then the low res model's sword handle geometry. To compensate for this, I enabled the 'cage' option and used an extrusion setting that matched the length of the farthest distance that the high res handle bands extruded out from the low res handle, which is cylindrical only. The rest of the sword geometry comparison between lower and higher res models is almost identical except for some high res scratches and detail sculpting.

I'm basically looking for something I may be missing in the entire setup of models and settings for ambient occlusion baking, in order to get that nice ambient occlusion grey gradient shading on my texture.
Cycles Baking behaves a bit different from BI Baking due to the design. However, you can simulate what you expected by creating an auxiliary object, and tweak the Distance value located in World tab to get rid of the "normalized" look.


Create a big enough object, center it to the target objects;
Tweak the Distance value based on the dimension of the new object. (As shown below, I created a 20 x 20 x 20 cube object, so that the distance between the sword and cube is around 10.)