Dollar Strength After Senate Adopts Budget Weighs on Gold

By Amrith Ramkumar Features Dow Jones Newswires

Gold prices fell Friday, hurt by a stronger dollar after Senate Republicans adopted a budget for the next fiscal year, clearing a critical hurdle in the GOP push to overhaul the tax code.

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Gold for December delivery closed down 0.7% at $1,280.50 a troy ounce on the Comex division of the New York Mercantile Exchange. The precious metal has fallen in five of the last six weeks.

The dollar rose Friday, making gold more expensive for foreign buyers, after the Senate's passing of a budget blueprint helped unlock a procedure that Republicans plan to use to rewrite the tax code with just GOP votes. The WSJ Dollar Index, which tracks the U.S. currency against a basket of 16 others, was recently up 0.6%.

The dollar's recent strength and investor bets that the Federal Reserve will stick to its plan to gradually raise interest rates moving forward have weighed on gold prices since they hit their highest level in more than a year in early September. Some analysts said progress in Washington could support the dollar moving forward and continue weighing on gold.

"Our view on tax reform is that short term, it's a headwind," said Marcus Garvey, commodities strategist at ICBC Standard Bank.

"Headlines about its progress and if you get close to something getting done -- that would be bullish the dollar and negative for gold," he said.

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Still, the medium or long term impact of tax cuts on gold would depend on the nature of the bill, Mr. Garvey said.

Amid speculation about who the next Fed chair will be, many investors will be monitoring central-bank signals and readings on the U.S. economy moving forward. Some have said weak inflation could change the Fed's path for rate increases, supporting gold prices once again. The precious metal struggles to compete with yield-bearing assets like Treasurys when borrowing costs rise.

Traders were also monitoring possible geopolitical conflicts that could boost gold because many investors favor the haven asset during times of uncertainty. Spanish Prime Minister Mariano Rajoy was poised Thursday to exercise constitutional powers to impose tighter control on Catalonia, as Madrid seeks to quell the region's bid for independence.

Among base metals, copper for December delivery pared earlier gains and closed down 0.1% at $3.1655 a pound in its fourth straight session of losses. The industrial metal has still risen in four straight weeks after Monday's rally and sits near three-year highs following strong readings on the Chinese economy. China accounts for nearly half the world's copper consumption.

Many investors and analysts were continuing to monitor the ongoing Communist Party congress, which could provide clues about China's economic plans for the future.

Write to Amrith Ramkumar at amrith.ramkumar@wsj.com

(END) Dow Jones Newswires

October 20, 2017 14:55 ET (18:55 GMT)