By Apeksha Nair
(Reuters) - Gold prices edged higher on Tuesday as the dollar weakened, with investors considering the potential impact of a sweeping tax legislation in the United States that Congress appeared all but certain to pass this week.
Spot gold was up 0.2 percent at $1,263.61 an ounce as of 0808 GMT. U.S. gold futures rose 0.1 percent to $1,267 an ounce.
Two Senate Republican holdouts agreed on Monday to support the tax overhaul backed by President Donald Trump, with the House of Representatives set to vote on Tuesday and the Senate either later on Tuesday or on Wednesday.
"Passing the tax reforms and getting the bill signed this week should reasonably drag gold prices lower as it means more appetite to risk assets, higher interest rates, and higher dollar," said Hussein Sayed, Chief Market Strategist at FXTM.
However, the flattening in the yield curve could likely cap any dollar gains, Sayed said. [US/]
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Optimism surrounding the bill has helped equities surge to record highs, but the dollar remained mired in its recent ranges in subdued trade, as investors mulled over its ultimate effect on economic growth.
"We are somewhat wary about gold's upside potential here and would not be buying it at current levels as we think there are more reasons working against it at this stage than for it," INTL FCStone analyst Edward Meir said.
"Higher equities, surging bitcoin prices, and the possibility that the tax bill could trigger a modest short-term uptick in both the dollar and U.S yields" could weigh on gold, Meir added.
Even as the Congress moved closer to the tax reform, outgoing Federal Reserve Chair Janet Yellen last week gave a more sobering assessment of its impact, saying a short-term bump is likely, but a longer-term boost is not.
"We expect prices to work higher through the headwind of firmer U.S. monetary policy and expect there will be further bouts of safe-haven buying on the back of the North Korea situation. We expect spot gold prices to trade in a $1,190 to $1,390 per ounce range in 2018," Scotiabank analysts said in a note.
Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.8 percent to 837.20 tonnes on Monday.
In other precious metals, silver edged down 0.3 percent to $16.09 an ounce.
Platinum was up 0.4 percent at $910 an ounce, having climbed back above $900 for the first time in nearly two weeks in the previous session.
Palladium was unchanged at $1,017.70 an ounce.
(Reporting by Apeksha Nair in Bengaluru; Editing by Biju Dwarakanath)