Gold price recovers from 2-month low as dollar weakens

New York (Dec 6)  Gold prices held above a two-month low on Wednesday, as a softer dollar stopped further losses on concerns over the progress of a U.S. tax reform plan and a potential government shutdown.

Spot gold inched up 0.1 percent to $1,267.85 an ounce by 1055 GMT after it hit its lowest since Oct. 6 in the previous session. U.S. gold futures were up 0.45 percent at $1,270.40 an ounce.

The dollar index was down on Wednesday on uncertainty around a possible U.S. government shutdown if lawmakers fail to reach a budget accord before a Friday deadline. A softer greenback makes dollar-denominated assets such as gold cheaper for holders of other currencies.

"A shutdown in the government should be positive for gold but that could be temporary because no one really expects the U.S. to default," said Capital Economics commodities economist, Simona Gambarini.

Meanwhile, the Republican-controlled U.S. House of Representatives voted on Monday to go to conference on tax legislation with the Senate, moving Congress another step closer to a final bill.           
    Adding pressure on gold was market expectation that the U.S.
Federal Reserve is almost certain to raise interest rates next
week at its final monetary policy meeting for the year. This
view was confirmed by a Reuters poll of economists.            
    "Gold stays under pressure in the short run as the market is
repricing a little bit more Federal Reserve activity next year
and the global economy is sparking an uptrend, earnings coming
in well and the value for safe-haven assets like gold is
diminishing," said Dominic Schnider at UBS Wealth Management in
Hong Kong.
    Capital Economics' Gambarini said the price of gold had not
fully reflected expectations of a U.S interest rates next week
and in 2017 and therefore saw the yellow metal easing further in
the short term.
    Gold is highly sensitive to rising U.S. rates, as these lift
the opportunity cost of holding non-yielding bullion, while
boosting the dollar, in which it is priced.
    Meanwhile, holdings in the world's largest gold-backed
exchange-traded fund, SPDR Gold Trust , fell 0.17 percent
to 845.47 tonnes on Tuesday.         
    Spot gold may break support at $1,262 per ounce, and fall to
the next support level at $1,250, Reuters technicals analyst
Wang Tao said.            
    Among other precious metals, silver was nearly
unchanged at $16.08 an ounce, after hitting its lowest since
mid-July in the previous session.
    Platinum eased 0.4 percent to $912.40 an ounce, after
 touching its lowest in nearly 6 weeks at $908.50. Palladium
       gained 0.8 percent to $990.47 an ounce.