Gold drops slightly in choppy trade as dollar pares losses

[NEW YORK] Gold prices dropped on Wednesday in see-saw trade, first rising to the highest since Oct 20, then sliding and hovering near session lows, as the US dollar pared losses.

US data showed a rise in retail sales data last month and an uptick in underlying inflation which cemented expectations for further US interest rate hikes. This helped the US dollar bounce off lows against a basket of currencies.

A weaker dollar makes gold cheaper for holders of other currencies.

Spot gold was down 0.2 per cent at US$1,277.51 by 1.41pm EST (1841 GMT), after touching US$1,289.09, the highest since Oct 20. The metal remained up 0.8 per cent for the week.

US gold futures for December delivery settled down US$5.20, or 0.4 per cent, at US$1,277.70 per ounce.

The outlook for US tax cuts that could stimulate economic growth was clouded after US Senate Republicans created new political obstacles by linking the repeal of a key component of Obamacare to the tax reform plans.

"There's speculation that tax cuts could be a long time coming, meaning the Fed will not have to be as aggressive as it might have been," said Robin Bhar, head of metals research at Societe Generale.

ANZ analyst Daniel Hynes said Wednesday's inflation data could be a trigger to break gold from the US$1,265 to US$1,290 range in which it has traded since mid-October.

"The Fed wants inflation, but it's just not happening. Rates have been low for so many years, you would think the inflation would be a lot higher, but it's not," said Michael Matousek, head trader at US Global Investors in San Antonio.

"If inflation would go higher, it would be easier for the Fed to raise rates."

US stocks were lower as energy stocks remained under pressure after oil prices fell for a fourth straight day.

On the technical side, resistance was at the 50-day moving average around US$1,292 and a Fibonacci level at US$1,297.70, ScotiaMocatta analysts said.

In other precious metals, silver was down 0.4 per cent at US$16.95 an ounce, platinum rose 0.2 per cent at US$927.74 an ounce and palladium was down 0.4 per cent at US$981.75 an ounce after touching a two-week low of US$973.40.

REUTERS