Investing.com - Gold prices drifted higher as the US Senate version of Donald Trump's proposed tax cuts hit a roadblock and investors noted a slowdown in a private survey on China's manufacturing.
Gold futures for December delivery on the Comex division of the New York Mercantile Exchange rose 0.20% to $1275.69 a troy ounce.
Senate Republicans have delayed voting on their tax bill as a setback forced them to patch up the plan only hours before a planned final vote. The bill will be reworked and roll call votes are set for 11 a.m. on Friday, Senate Majority Leader Mitch McConnell said.
The Senate parliamentarian ruled Thursday that a fiscal "trigger," important to winning deficit-wary Sen. Bob Corker's support for the GOP plan, will not work under Senate rules.
China's manufacturing activity fell in November to the weakest pace in five months as input costs remained with the Caixin/Markit Manufacturing Purchasing Manager's Index down to 50.8 from 51.0 in October.
By contrast the official Purchasing Managers' Index (PMI) released on Thursday stood at 51.8 in November, compared with 51.6 in October.
Overnight, gold prices fell sharply as upbeat inflation data lifted treasury yields higher sparking a recovery in the dollar, while signs of progress on tax reform weighed on sentiment.
The Core Price Consumer Expenditure (PCE) Index – the Fed’s preferred measure of inflation – rose 1.4% in October year-on-year, compared to a 1.3% rise in the previous month, while September inflation was revised upward to 1.4% from 1.3%.
The upbeat inflation report, fuelled expectations that the Federal Reserve would adopt a more aggressive stance on monetary policy, lifting yields and the dollar higher, which pressured gold prices to a nearly two-week low.
Chief economist at Amherst Pierpont Securities Stephen Stanley said the “tentative evidence” of a turnaround in the trend of slowing inflation could “soothe” concerns of subdued inflation among “all but the most dovish” policy makers.
Gold is sensitive to moves higher in both bond yields and the U.S. dollar – A stronger dollar makes gold more expensive for holders of foreign currency while a rise in U.S. rates, lift the opportunity cost of holding non-yielding assets such as bullion.