Gold holds firm as dollar wilts ahead of U.S. tax vote

By Jan Harvey

LONDON (Reuters) - Gold held firm above $1,260 an ounce on Tuesday as caution over the passage of sweeping tax legislation in the United States weighed on the dollar, supporting the precious metal after two days of gains.

But moves in the metal were muted, as market players were wary of taking new positions before the holiday season. Gold is on track to post its narrowest trading range of any quarter in a decade in the last three months of the year.

Spot gold was flat at $1,261.30 an ounce at 1500 GMT, while U.S. gold futures for February delivery were down 90 cents an ounce at $1,264.60.

Last week, the metal fell to a five-month low of $1,235.92 as the dollar hit its highest in a month ahead of a widely anticipated U.S interest rate hike from the Federal Reserve.

"The one thing that really brought prices down was interest rates going up in the United States," LBBW's head of commodity research Frank Schallenberger said. "As long as we had that decision in front of us, there was bad news in the future for gold. Now the market has digested that, ... gold is free to move up a little bit."

Attention is now turning to plans for sweeping tax legislation in the United States.

With the Republicans' self-imposed Friday voting deadline looming, the U.S. Congress appeared all but certain to pass the bill after two Senate Republican holdouts agreed on Monday to support the tax overhaul backed by President Donald Trump.

World stocks steadied after their biggest jump in almost six months, fuelled by U.S. tax cut hopes. That rally fed into what was already one of the strongest and longest global bull runs on record.

The dollar eased against the euro, as investors took a cautious view over how much the tax reforms, if passed, would boost the U.S. economy.

"The (gold) market is trying to move higher ... (as) the euro/dollar is trying to move above $1.18 again," ABN Amro analyst Georgette Boele said, though she added that moves were still relatively small. "Liquidity is drying up a bit."

Holdings of the world's largest gold-backed exchange-traded fund, New York-based SPDR Gold Shares, fell 7.1 tonnes on Monday, their largest one-day outflow since late July. That has cut its inflow for the year to just 15 tonnes.

Among other precious metals, silver was down 0.5 percent at $16.05 an ounce.

Platinum was 0.9 percent higher at $914.25 an ounce, having climbed back above $900 for the first time in nearly two weeks on Monday. The metal has rallied nearly $30 an ounce in the last two trading sessions.

Palladium was up 0.5 percent at $1,022.74 an ounce.

(Additional reporting by Apeksha Nair in Bengaluru; Editing by Edmund Blair and Adrian Croft)