Gold extends gains as U.S. tax bill concerns hit dollar

Reuters
Gold bars are seen at the Kazakhstan's National Bank vault in Almaty, Kazakhstan, September 30, 2016. REUTERS/Mariya Gordeyeva/File Photo

By Renita D. Young and Eric Onstad

NEW YORK/LONDON (Reuters) - Gold edged higher on Monday as uncertainty over U.S. tax legislation weighed on the dollar, while an analyst said bullion might face renewed headwinds early next year. Platinum rose 2 percent as investors recovered short positions.

Spot gold (XAU=) was up 0.53 percent at $1,261.87 an ounce by 1:40 p.m. EST (1840 GMT) after hitting $1,263.98, its highest since Dec. 6.

U.S. gold futures (GCcv1) for February delivery settled up $8, or 0.6 percent, at $1,265.50 per ounce.

Platinum (XPT=) rose 1.8 percent to $909.25 an ounce after rising to $915, its highest since Dec. 6.

The dollar index (.DXY) fell, making bullion denominated in the greenback cheaper for buyers using other currencies, as concerns grew over whether the proposed U.S. tax code overhaul would have a major impact on economic growth. [/FRX]

"If (the tax bill) were to pass, we think the gold price would fall lower," said Rob Haworth, senior investment strategist for U.S. Bank Wealth Management. "That has to do with stronger growth, more room for the Fed to normalise interest rates. That should create a headwind for investors."

Higher interest rates usually push gold lower because they raise bond yields, reducing the appeal of non-yielding bullion, and boost the dollar, making gold more expensive for holders of other currencies.

"If the tax proposal were to fail, there would be some reason to think there's political risk at that point because it would take the market by surprise, and that would provide some support for gold," Haworth added.

Top U.S. Republicans expect Congress to pass the bill this week, with votes in the House of Representatives and Senate as early as Tuesday.

A final bout of dollar strength could hit gold into 2018, sending prices down $25 to $50, but then it should recover, said analyst Carsten Menke of Julius Baer in Zurich.

In other precious metals, platinum reached a 1-1/2-week high.

"Platinum was trending significantly lower, got a little oversold and right now, it's covering of short positions," a New York-based trader said.

Having risen 1.7 percent during the last session, platinum is on track for its biggest two-day rally since January.

Prices of the metal have increased in January and February over the past 15 years due to maintenance shutdowns in South Africa, which accounts for 70 percent of platinum, Menke added.

Silver (XAG=) was up 0.4 percent at $16.12 an ounce after rising to a nearly two-week high of $16.17.

Palladium (XPD=) fell 0.6 percent to $1,017 an ounce.

(Additional reporting by Apeksha Nair in Bengaluru; Editing by Dale Hudson and Lisa Von Ahn)