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These Factors Helping Gold Hold Up Near Bottom Of Range

Kitco News

(Kitco News) - Gold prices are near the bottom end of their two-month-old trading range, but analysts say the precious metal does have a number of factors preventing a further breakdown through chart support, at least for now.

This includes uncertainty about how quickly Congress will reconcile differing versions of U.S. tax reform, the impact of this upon the federal deficit, along with ongoing geopolitical and political issues.

As of 8:52 a.m. EST, Comex February gold was down $1.80 to $1,275.90 an ounce. The contract bottomed at $1,275.20, after holding around the $1,273-$1,274 area for the last three trading days in a row.

Pressure on the metal Monday was the result of a stronger U.S. dollar and equities after weekend passage by the Senate of perceived business-friendly tax changes, analysts said. They also cited continued expectations for a hike in U.S. interest rates when the Federal Open Market Committee meets next week, given mostly favorable U.S. economic data lately.

But analysts also see factors limiting any further potential gold downside.

“Going forward, there are still some uncertainties that still are providing support for gold,” said Sean Lusk, director of commercial hedging with Walsh Trading. “The U.S. Senate’s and House of Representatives’ separate forms of the tax bill still must be reconciled. Uncertainty over whether this can be done in a timely manner and tensions over North Korean missile tests continue to give gold underlying support, in my view.

“Also continuing concerns over an investigation into former U.S. National Security Adviser Michael Flynn’s contact with Russia’s U.S. ambassador during Trump’s election campaign have been a bullish undercurrent in the market.”

TD Securities, in a weekly commodities report, also suggested there may be “plenty of obstacles ahead” for proposed U.S. tax cuts that have so far have lifted stocks while hurting gold.

“With that said, it is doubtful the reconciliation will be without some bumps in the road, and for that reason we don't expect a mass exodus from gold, and we should continue to remain range bound in the near term,” TDS said. “Furthermore, slightly dovish comments from incoming Fed Chair [Jerome] Powell on the labor market suggest he may not raise rates as quickly as anticipated, while other geopolitical tensions such as the Russia investigation, Brexit and North Korea should also support prices.”

Jonathan Butler, precious-metals strategist with Mitsubishi, suggested the likelihood of Congress eventually passing tax reform may continue to underpin stocks and thus pressure gold in the short term, yet he also anticipates some investors will be moving into the metal due to rising budget deficits and the U.S. debt-ceiling issue.

“If the new tax bill ends up inflating the already enormous U.S. federal deficit, it may lead to some safe-haven hedging in gold,” Butler said. “As the end of the year approaches, a possible area of support for gold may come from the expiry of the current U.S. government funding bill on 8th December – if it is not replaced, this could lead to a government shutdown, which damaged the dollar and led to safe-haven buying of bullion when it occurred in 2013.

“Failure to reach agreements on raising the U.S. debt ceiling early in the New Year could provide further support, though the chance of this is now lessened by the fact that the debt ceiling may be used as a bargaining chip in the current tax-reform debate.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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