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Trump tax plan pushes gold to 6-week low

Key Points
  • Dollar near 6-week high, U.S. bond yields rise.
  • Strong U.S. data fuels rate hike expectations.
  • Palladium rises above platinum for first time since 2001.
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Gold touched a six-week low on Thursday after the dollar and U.S. bond yields rose on proposed
U.S. tax reforms and strong economic data that supported the case for another U.S. interest rate hike this year.

U.S. stocks rose and the dollar touched its highest level since mid-August before slipping as markets bet President Donald Trump's tax-cutting plan could accelerate economic growth.

Expectations of higher U.S. debt levels and a December interest rate rise pushed 10-year Treasury yields to a 2-1/2-month high, helped by data pointing to underlying strength in the U.S. economy and a hawkish speech by Federal Reserve Chair Janet Yellen.

A stronger dollar makes gold more expensive for holders of other currencies, while higher bond returns reduce the attractiveness of non-yielding bullion. Interest rate increases raise bond yields and tend to boost the dollar.

"These developments are not something gold can thrive on," said Saxo Bank analyst Ole Hansen. "It's natural we see weakness coming through."

Spot gold was up 0.43 percent at $1,286.25 an ounce at 1:39 p.m. ET after hitting $1,277.26, its lowest since Aug. 16.

U.S. gold futures for December delivery were up just 0.09 percent to $1,289.

Speculative fund investors were sticking with gold and demand was underpinned by geopolitical worries over North Korea's nuclear program and an independence vote in Kurdistan, Hansen said.

"The fund long position has not been much reduced in recent weeks even though gold has retraced half of its July-to-September rally ... That indicates gold is less exposed to a major selloff," he said.

Technical Fibonacci support for gold was at $1,281.30, analysts at ScotiaMocatta said. The 100-day moving average was at $1,271.

In other metals, platinum was up 0.05 percent at $916.50 an ounce and palladium was 0.28 percent higher at $929.10, a day after palladium hit price parity with platinum for the first time since 2001.

Both metals are primarily consumed by automakers for catalytic converters, but platinum is more heavily used in the diesel vehicles that have fallen out of favour.

"In the long run, we believe palladium and platinum could trade at similar levels," said Samson Li, an analyst with Thomson Reuters GFMS.

"The strength of palladium this year is due to the strong performance of the Chinese auto sector. Sales have been better than expected ... Palladium is like a growth stock while platinum is like a value stock now," Li said.

Silver was up 0.42 percent at $16.81 an ounce after dropping to $16.64, its lowest since Aug. 16.