• Gold has dropped one per cent to a two-month low as the US dollar rises 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 $US1,263.02 an ounce by 1.49 pm Tuesday EST (0549 Wednesday AEDT), after dropping to a two-month low of $US1,260.71.
• US gold futures for February delivery settled down $US12.80, or 1 per cent, at $US1,264.90 per ounce.
• "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 $US1,250 an ounce, Graves added.
• 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.
• Next year could be difficult for the precious metals markets as interest rates rise along with the global economy, according to analysts at Bank of America Merrill Lynch (BAML).
• In the bank’s 2018 outlook event Tuesday, the bank said that they see gold averaging the year at $1,326 an ounce, up only about 5% from current prices. BAML projects a little more potential for silver as they see prices averaging 2018 at $17.41, up more than 8% from current prices.
• Francisco Blanch, head of commodity and derivatives, said the bank is cautious on precious metals as it sees a rise in real interest rates and renewed strength in the U.S. dollar.
“While inflation should rebound slightly, the macro-economic backdrop remains challenging for gold and as such, we see only limited upside to prices in 2018,” he said in his 2018 outlook report.
• Currently the bank is expecting the Federal Reserve to raise interest rates three times next year. This is in line with the central bank’s own forecast, but is more hawkish than markets expect. CME 30-day Fed Fund futures are pricing a 50% chance of only two rate hikes by November 2018.
Overall, BAML is extremely bullish on the U.S. economy as they see it expanding 2.4% next year, up from 2.2% growth in 2017. At the same time, they estimate the nation’s unemployment rate falling towards 3%.
As for inflation, Harris said that it is only a matter of time before ongoing economic growth will boost inflation higher. For the year, BAML penciled in a core Consumer Price Index of 1.8% by the end of 2018 and reaching the Federal Reserve’s 2% target by 2019.
• Among other precious metals, silver was down 1.7 per cent at $US16.04 an ounce, earlier sliding to a 4-1/2-month low of $US16.
• Platinum dipped 1 per cent at $US914 an ounce, after matching its Oct. 30 low of $US909.50.
• Palladium dropped 0.8 per cent at $US984.60 an ounce, after touching a 2-1/2-month low of $US979.60.
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