Gold prices fall as US approves blueprint for Trump’s tax cuts
London — Gold prices fell on Friday after the US Senate approved a budget blueprint that paves the way for tax cuts, causing stocks, the dollar and bond yields to rise. Late on Thursday, the Republican-controlled Senate voted by 51 to 49 for the measure, clearing a hurdle for tax cuts that would add up to $1.5-trillion to the federal deficit over the next decade.
Investors betting on faster economic growth as a result bought riskier assets, while bond holders reduced their positions on worries that inflation and Federal borrowing could rise.
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 0.6% at $1,282.33 an ounce at 2.22pm GMT, taking losses this week to 1.7%. US gold futures for December delivery were 0.5% lower at $1,283.60 an ounce.
"We seem, once again, to be ready to test technical support around $1,275 to $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 higher than $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, US President Donald Trump could announce his choice for the next chairperson of the US Federal Reserve as early as next week after he interviewed five candidates, including incumbent 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 October 26 that it will start trimming its monthly asset purchases to ¤40bn from ¤60bn in January, a Reuters poll showed.
In other precious metals, silver was down 0.2% at $17.16 an ounce, taking its fall this week to about 1%. Platinum was flat at $921.20 an ounce and palladium was up 1.7% at $975. Both metals were down on the week.