Gold comes off highs after US House Republicans propose tax cuts

[NEW YORK] Gold prices pared gains after touching a two-week high on Thursday, after Republicans in the US House of Representatives unveiled legislation to overhaul the US tax system.

Investors also focused their attention on the nomination of a new US Federal Reserve chair, who could influence the pace of future interest rate increases.

The dollar fell and US 10-year Treasury yields slid to two-week lows after House Republicans proposed to slash the corporate tax rate to 20 per cent from 35 per cent and reduce the number of tax brackets for individuals.

"There was a slight bit of volatility around the time of the tax cut announcement," said Dan Hussey, senior market strategist at RJO Futures in Chicago, adding this caused gold prices to come off their highs.

Lower bond yields make non-yielding gold more attractive to investors, while a weaker dollar makes bullion cheaper for holders of other currencies.

Spot gold was up 0.2 per cent at US$1,276.79 an ounce by 2.43pm EDT (1843 GMT), after touching US$1,284.10, the highest since Oct 20.

US gold futures settled up US$0.80, or 0.1 per cent, at US$1,278.10 per ounce.

Investors were focused on the choice of the next Fed chair, said James Butterfill, head of investment strategy at ETF Securities.

"He (Powell) is probably slightly more dovish than Yellen,"said Mr Butterfill.

"That means perhaps also the prospect of fewer rate hikes than the Fed is currently pricing for next year - possibly only one or two. That's why gold is being supported."

Markets are pricing a 97 per cent likelihood of a rate increase in December, according the CME Fedwatch tool, and the pace of subsequent rises could be faster if the Republican tax proposal was enacted and succeeded in speeding economic growth.

Investors hedging against the stock market possibly overheating also drove gold prices up, said Miguel Perez-Santalla, vice-president of Heraeus Precious Metals in New York.

Gold rose above its 100-day moving average at US$1,275.62 but indicators suggested prices would fall, analysts said.

"Gold continues to weigh on the downside and still implies a test of the current October low and the 200-day moving average at US$1,260.55/US$1,260.89," said Commerzbank technical analysts.

In other precious metals, silver was down 0.2 per cent at US$17.09 an ounce, after touching US$17.24, its highest since Oct 20.

Platinum was down 1.1 per cent at US$921 an ounce and palladium was down 0.7 per cent at US$994.75 per ounce.

REUTERS