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Gold Jumps on Lower US Dollar, Tax Reform Uncertainty

December 18, 2017 at 17:48 by Andrew Moran

Gold prices are extending their rally on Monday as the US dollar tumbled amid uncertainty over the Republican tax bill. Although analysts do not believe the GOP tax legislation will fall completely apart, the yellow metal is taking advantage of the concerns among investors.

February gold futures rose $8.00, or 0.64%, to $1,265.50 per ounce at 16:32 GMT on Monday. Gold prices advanced less than 1% last week, trading at their lowest levels in five months.

Silver, the sister commodity to gold, is also looking to rally to start the trading week. March silver futures jumped $0.10, or 0.67%, to $16.17 an ounce. The white metal slipped 1% last week.

The US dollar is plunging on Monday as the greenback is down 0.44%. A weaker US dollar is good for dollar-denominated commodities like gold and silver because it makes it cheaper for foreign investors to purchase.

Investors are uncertain as to what exactly will happen with President Donald Trump’s landmark tax legislation. A key vote on the package is expected in the Congress soon, and Treasury Secretary Steven Mnuchin vowed that the bill will land on the desk of the president before Washington leaves for the Christmas break. Trump has repeatedly said that he wants to get tax reform done before the New Year.

Traders are shorting gold as hedge funds and money managers slashed their net long positions in COMEX gold contracts in the week ending December 12, according to data from the Commodity Futures Trading Commission (CFTC).

Silver is also taking a hit in the futures market. CFTC reporting figures show that nearly 10,000 tons of silver were sold on the futures market in the last two weeks, and more than 11,000 in the last four weeks, which is equal to about five months of global silver mining production.

Analysts note that spot gold is facing a resistance at $1,262 an ounce, and a strengthening US dollar at the end of 2017 may force spot gold to find support at $1,239.

This comes as the Federal Reserve raised interest rates for the third time this year last week, and anticipates three rate hikes next year. Gold is generally sensitive to a rising-rate environment because it boosts the opportunity cost and encourages investors into yield-bearing assets.

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