Gold price falls as hopes of tax reform boost riskier assets

October 22, 2017

London (Oct 22)  Gold prices fell on Friday after the US Senate approved a budget blueprint that paves the way for tax cuts, causing European stocks, the dollar and bond yields to rise as investors betting on faster economic growth bought riskier assets.

The Republican-controlled Senate voted by 51-to-49 late on Thursday for the measure, which clears a hurdle to President Donald Trump’s plans to reduce taxes by up to $6 trillion. Higher bond yields increase pressure on bullion because gold does not offer a yield, while a stronger dollar makes it more expensive for holders of other currencies.

Investors may also see tax cuts as a cause for higher US interest rates, said INTL FCStone analyst Edward Meir. Higher rates would push up bond yields and the dollar. Spot gold was down 0.5 per cent at $1,282.90 an ounce at 1033 GMT, taking losses this week to 1.6 per cent. US gold futures for December delivery were 0.4 per cent lower at $1,285 an ounce.

“We seem to once again be ready to test technical support around $1,275-$1,270,” said Mitsubishi analyst Jonathan Butler. “If we look at the chart, it’s a classic head and shoulders pattern here and the danger is we’ll break lower to a level at $1,250 or even below.”

Analysts at Commerzbank said gold’s failure to remain above $1,300 could prompt speculative investors betting on higher prices to exit their positions, pushing prices lower. The net long position of money managers in Comex gold has fallen from a peak in early September but is still at an elevated level. Meanwhile, Trump could announce his choice for the next chair of the US Federal Reserve as early as next week after he interviewed five candidates including current chief Janet Yellen.

A report on Thursday suggested Trump was leaning towards Fed Governor Jerome Powell, perceived as a less hawkish candidate. The European Central Bank is expected to say on Oct. 26 it will start trimming its monthly asset purchases to 40 billion euros from 60 billion euros in January, a Reuters poll showed.

In other precious metals, silver was down 0.1 per cent at $17.19 an ounce, taking its fall this week to around 1 per cent. Platinum was 0.1 per cent lower at $920.99 an ounce and palladium was up 1.3 per cent at $971.40. Both metals were down on the week.


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