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Gold falls on bond yields, US tax doubts limit losses

[NEW YORK] Gold prices turned lower on Friday as US Treasury bond yields rose, but losses were limited by weaker stock markets and the US dollar, which fell due to uncertainty over US tax reform.

A rise in US bond yields pressures gold by reducing the attractiveness of non-yielding bullion, while a weaker US dollar makes bullion cheaper for holders of other currencies.

"A higher yield tends to increase the cost to carry gold, and we had a little uptick in the yield curve slope," said Bart Melek, head of commodity strategy at TD Securities in Toronto.

Two-year yields were at a nine-year high as traders closed out curve-flattener positions and dealers reduced their holdings of longer-date debt following this weeks auctions.

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Spot gold was down 0.7 per cent at US$1,275.60 an ounce by 1.55pm EST (1855 GMT). It touched US$1,288.34 on Thursday, its highest since Oct 20 and was on track for a 0.5 per cent weekly rise.

US gold futures for December delivery settled down US$13.30, or one per cent, at US$1,274.20 per ounce, a 0.4 per cent weekly rise.

The US dollar was set for its first weekly fall in a month as disappointment that a landmark US tax overhaul may be delayed until 2019 put a brake on the currency's recent rally.

Uncertainty over the tax plans also hit US stock markets and helped end the longest run of global share price gains since 2003. Expectations of lower taxes, one of President Donald Trump's key promises, have helped power the S&P more than 20 per cent since the 2016 presidential election.

Political or economic uncertainty often prompts investors to buy gold to protect their assets from declining yields, since gold is a non-yielding commodity.

Further share price falls would likely increase the price of gold, said Saxo Bank analyst Ole Hansen.

In other precious metals, silver was down 0.6 per cent at US$16.89 per ounce, yet on track for a 0.4 per cent gain this week, its first weekly rise in four weeks.

Platinum was down 0.8 per cent at US$929.40 an ounce after hitting US$941.40, the highest since Oct 16. It was set for a weekly gain of 1.2 per cent.

Palladium was down 1.6 per cent at US$994.22 an ounce after touching its highest since 2001 at US$1,026.10 on Thursday and was down 0.3 per cent for the week.