Gold edged higher on Monday as uncertainty over U.S. tax reform weighed on the dollar, while an analyst said bullion may face renewed headwinds early next year.
The dollar index fell, making dollar-denominated bullion cheaper for buyers using other currencies, as concerns grew over whether proposed U.S. tax reform would have a major impact on economic growth.
"If the whole thing (tax reform) falls apart at the last minute, it would be hugely positive for gold, but I think that is unlikely," said analyst Carsten Menke at Julius Baer in Zurich.
If the tax bill passes, gold might dip slightly, but that scenario is largely priced in the market, he added.
Expectations that tax cuts would spur economic growth and prompt faster interest rate rises in the United States have boosted the dollar and weighed on gold.
Top U.S. Republicans said they expected Congress to pass a tax code overhaul this week, with a Senate vote as early as Tuesday.
Spot gold was up 0.5 percent at $1,261.30 an ounce by 1505 GMT, while U.S. gold futures rose 0.6 percent to $1,264.40 an ounce.
Looking to 2018, Menke expects a final bout of dollar strength to hit gold, sending prices down $25-$50, but then gold should recover.
"The dollar should then run out of steam and that should help build a more fundamentally sound base for gold prices," he said.
"Over the course of 2018 when the first concerns about a slowdown in growth creep into financial markets, you might also get some renewed safe-haven buying."
Hedge funds and money managers cut their net long positions in COMEX gold contracts in the week to Dec. 12, while they switched to a net short stance in silver for the first time in five months, data showed on Friday.
"Some 9,670 tons of silver were sold on the futures market in the last two CFTC reporting weeks – and as much as 11,480 tons in the past four weeks. The latter equates to five months of global silver mining production," Commerzbank said in a note.
Silver, which dipped 0.1 percent to $16.03 an ounce, had shed about 10 percent over four weeks after touching a peak on Nov. 17.
Palladium fell 0.3 percent to $1,020 an ounce and platinum rose 1.5 percent to $907 an ounce, its highest since Dec. 6.
Menke said platinum prices have usually increased in January and February over the past 15 years.
"I think people are aware of that and there`s a fundamental element to it, which is maintenance (shutdowns) of the South African platinum industry, which makes up 70 percent of platinum supply."
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