Gold is slightly lower after having set 3-week highs in the previous 2 sessions. The yellow metal is garnering support from a modest pullback in the dollar and softer stocks, as doubt arose about the prospects for timely passage of the GOP tax reform legislation.
The Senate version delays the corporate tax cuts until 2019 and has more tax brackets than the House version. There is some concern that reconciliation is going to be contention and may prevent the legislation from reaching the President’s desk before year-end.
If the Trump administration fails to notch a significant legislative victory this year, any remaining momentum they have may be lost. That might put Republican congressional majorities in jeopardy next year, signalling the end of Trump’s pro-business, reflation agenda.
If that is the way things unfold, the U.S. stock market would be vulnerable to a serious correction. Safe-haven assets like gold would come back in favor and one might reasonably expect the Fed to reverse recent policy tightening.
Today’s U.S. calendar includes preliminary consumer sentiment for November and October Treasury budget. Next week’s data has October PPI and CPI. Both are expected to remain soft, which may raise some doubts about the true prospects for a December rate hike.
While gold adopted a more positive tone this week within the well-defined range, a convincing move back above $1300 is still needed to return a measure of confidence to the uptrend that has dominated most of this year. On the downside, support is well defined at 1263.00/1260.10.