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Gold at two-month low as dollar bounces on US tax plan support

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Gold dropped 1 per cent to a two-month low on Tuesday as the dollar rose against a basket of currencies and US stocks rebounded as investors assessed details of the US tax overhaul legislation.

[NEW YORK] Gold dropped 1 per cent to a two-month low on Tuesday as the dollar rose against a basket of currencies and US stocks rebounded as investors assessed details of the US tax overhaul legislation.

The US dollar gained for a second consecutive session and US technology stocks bounced, both benefiting from optimism surrounding the US tax plan. The House of Representatives on Monday voted to go to conference with the Senate on their differing versions of the tax legislation, setting up formal negotiations on the bill.

Spot gold was down 1 per cent at US$1,263.02 an ounce by 1.49pm EST (1849 GMT), after dropping to a two-month low of US$1,260.71.

US gold futures for February delivery settled down US$12.80, or 1 per cent, at US$1,264.90 per ounce.

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"With this move today, that opens the door to more liquidation until you get more geopolitical risk and uncertainty in the world," said Josh Graves, senior commodities strategist at RJO Futures in Chicago.

Psychological support could come in at around US$1,250 an ounce, Mr Graves added.

Gold has held broadly between US$1,271 and US$1,289 so far this month, after posting its narrowest monthly range in 12 years in November, but broke lower Tuesday.

Bullion has risen 10 per cent in the year to date, but momentum stalled in the second half as global equities rallied and an expected hike in US interest rates approached.

"Overall physical demand is down to multi-year lows, so even outside the investment community, there is no real push into gold from the likes of China and India," said Carsten Menke, analyst at Julius Baer.

"Without this demand spark, gold just remains very, very sensitive to the US dollar."

A stronger dollar makes assets priced in the US currency more expensive for holders of other currencies.

Investors also are looking towards the US non-farm payrolls report this week, the last employment figures before the US Federal Reserve's monetary policy meeting next week.

The Fed is almost certain to raise interest rates later this month, according to a Reuters poll of economists.

Gold is highly sensitive to rising US interest rates, which lift the opportunity cost of holding non-yielding bullion.

Among other precious metals, silver was down 1.7 per cent at US$16.04 an ounce, earlier sliding to a 4-1/2-month low of US$16.

Platinum dipped 1 per cent at US$914 an ounce, after matching its Oct 30 low of US$909.50. Palladium dropped 0.8 per cent at US$984.60 an ounce, after touching a 2-1/2-month low of US$979.60.

Monday's palladium price slide came with a 12,700-ounce reduction in exchange-traded fund holdings, Commerzbank said in a note. "This was already the fourth major daily outflow in the space of two weeks," it said.

REUTERS