Gold resumes rise as dollar steadies after Senate passes US tax bill

December 20, 2017

New York (Dec 20)  Gold gained Wednesday, on track to advance for a fifth day in six sessions, as expectations that the U.S. will approve the biggest tax-law change in 30 years kept the dollar steady.

Gold gained even with stocks signaling an early charge to fresh records, buoyed by the news for corporate taxes in particular.

February gold GCG8, +0.39% the most active contract on Comex, rose $4.50, or 0.4%, at$1,268.70 an ounce. The SPDR Gold Trust GLD, +0.08%  was up 0.2% premarket after hitting its lowest level since early September earlier this week. The VanEck Vectors Gold Miners ETF GDX, -0.14%  rose 0.1%.

The ICE Dollar Index DXY, -0.01%  slipped 0.1% to 93.39, trading off the one-month high scored earlier this month. The yield on the 10-year U.S. Treasury note TMUBMUSD10Y, +0.19%  slipped back to 2.458%. It traded at 2.466% Tuesday, its highest since late October.

Gold reversed its gain to close lower Tuesday as Treasury yields jumped and moves in that market—as investors adjust to bumped-up economic forecasts and a rate-tightening Federal Reserve— could continue to keep a lid on the precious metal. “The sharp increases in bond yields in the U.S. are presumably preventing the [gold] price from rising, as they make gold unattractive as an alternative investment,” said Carsten Fritsch and the commodities team at Commerzbank, in a note.

Congressional Republicans were on the verge of sending a historic $1.5 trillion tax bill to President Donald Trump by Christmas as pledged. The Senate passed an overhaul of the tax code early Wednesday by 51-48 after amending the measure the House passed Tuesday. The bill returns to the House for one more vote.

Tax changes offer a mixed bag for the metal. Some analysts have noted the increased risk of inflation, against which gold can act like a hedge, if the law supercharges the economy beyond the powers of a rate-tightening Fed. On the other hand, tax-fueled gains in U.S. stocks and other risk-on markets helped drive gold to five-month lows earlier this month.

But with the expected signing, “some of the uncertainty that might have lent support to the gold price next year has disappeared,” said Fritsch. “Despite this success, however, Trump’s second year in office is not likely to be much calmer. Plenty of political risks still remain — on both sides of the Atlantic — that should ensure robust demand for gold.”

Gold has risen more than 2% from a five-month low of $1,235.92 hit on Dec. 12, helped by a weakening dollar that makes gold cheaper for holders of other currencies. Gold is up over 9% for the year, a gain largely accumulated by the metal’s surge in the early months. In fact, data shows that prices have been confined to their narrowest trading range of any quarter in a decade in the last three months of 2017.

The Commerzbank note included data from consulting firm CPM Group, which does not envisage any significant growth in investment demand for gold in 2018 (27.5 million ounces). By contrast, investment demand for silver is set to soar by nearly 20% to 128 million ounces, it showed.


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