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Gold hits four-month low as firmer dollar sparks range break

Key Points
  • Gold prices dropped to their lowest level in four months
  • The dollar on Thursday inched up against its peers on optimism about tax reform
  • Hopes that U.S. tax reforms would boost economic growth have dented demand for safe-haven assets such as gold
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Gold slid to its lowest in four months on Thursday as a bounce in the dollar sparked by optimism over U.S. tax reform plans helped break the metal out of its recent narrow trading range.

Prices had been hemmed between $1,265 and $1,300 an ounce since mid-October as a series of record highs in stock markets detracted investment interest from bullion, and as traders awaited an expected increase to U.S. interest rates this month. Gold broke out of that range this week, extending losses after slipping below its 200-day moving average at $1,267.

Spot gold plunged 1.4 percent at $1,248.20 by 3:47 p.m. ET. U.S. gold futures for December delivery were 1.41 percent at $1,248.30.

"We've had a (breakdown) of support at $1,260, which is a key level," said ActivTrades chief analyst Carlo Alberto de Casa. "From a technical point of view, many traders had stop-losses just below $1,262, and today the market is going down for this reason."

Why one trader says it's time to sell gold

Strength in the dollar is feeding into this, he said. "That the U.S. dollar is recovering isn't very welcome for the commodities market."

The dollar touched a two-week high on Thursday on optimism the United States would push through tax reforms, while global equities rebounded after two straight days of losses. U.S. Senate Republicans agreed on Wednesday to talks with the House of Representatives on sweeping tax legislation, raising hopes that lawmakers could agree on a final bill ahead of a Dec. 22 deadline.

Gold is now awaiting further direction from U.S. non-farm payrolls data this week, a key barometer of the U.S. economy. Next week the Federal Reserve is also expected to announce another rise in U.S. interest rates and to offer guidance on the pace of further increases.

"The question is whether this weakness in gold is an image of the December 2015 and 2016 charts, where the metals began significant rallies after the rate increase announcement, or if we are in a different paradigm this time around," Kitco Metals said in a note.

Rising U.S. interest rates increase the opportunity cost of holding non-yielding gold while boosting the dollar, in which it is priced.

Among other precious metals, silver was down 1.55 percent at $15.718 an ounce after slipping to its lowest since mid-July at $15.74.

Platinum was down 1.07 percent at $892.05 after earlier touching its lowest since July 11 at $891.50. The metal has fallen nearly 5 percent this week and is on track for its biggest weekly loss in nine months.

Palladium was 1.96 percent higher at $1,013.