acudao

Metals Market

Aug. 22 ($ / troy oz.)
  • SPDR Gold Shares (GLD ETF)

    -0.24 decrease 116.83
  • IShares Silver Trust (SLV ETF)

    0.00 no change 15.57
arkadiusz-sieron

Will Tax Bill Sink Gold?

December 22, 2017, 8:53 AM

This week, the U.S. Congress approved the tax bill. What does it mean for the gold market?

So it finally happened. After months of struggle, the U.S. lawmakers passed a tax reform on Wednesday. Now, Trump has to sign it into law. What’s in the final version? The bill maintains current seven tax brackets for individuals, but temporarily lowers most income levels and rates for each one. It also increases the standard deduction.

The major change for corporations is a permanent cut in corporate income tax rate from 35 to 21 percent. The bill also exempts U.S. corporations from U.S. taxes on most future foreign profits and allows businesses to immediately write off, or expense, the full value of investments in new plant and equipment for five years.

What does the bill imply for the gold market? Well, it depends on the reception of the reform by the markets. So far, the reaction has been rather muted. It seems that we are seeing a pattern of “buy the rumor, ignore the fact”. Indeed, gold prices are little changed, as one can see in the chart below. The reason is that the bill was widely expected and already priced in.

Chart 1: Gold prices over the last three days.

Gold prices over the last three days

Markets always look to the future. Hence, gold prices will depend how the tax reform will shape the expectations. If the markets focus on the rising national debt (due to the tax cuts), the price of gold should rise. On the other hand, if Trump’s success restores the Trump trade and shifts the traders’ attention to the spending bill, the yellow metal will struggle. We believe that the second scenario is a bit more probable. We are not betting on a plunge in gold prices, but the main threat for the U.S. dollar bulls – i.e. the risk of not passing the tax bill (the U.S. Congress also averted a government shutdown this week) – has been removed. Given the positive macroeconomic outlook, we expect rather improved risk appetites, which would not be positive for the gold market. Moreover, the renewed conflict about Catalonia could also support the greenback – the old enemy of the yellow metal.

Merry Christmas and a Golden New Year!

If you enjoyed the above analysis, we invite you to check out our other services. We focus on fundamental analysis in our monthly Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. If you’re not ready to subscribe yet and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. .

Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.

Thank you.

Arkadiusz Sieron, Ph.D.
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

Gold News Monitor
Gold Trading Alerts
Gold Market Overview

Did you enjoy the article? Share it with the others!

Jan Market Overview

Gold Market Overview

In this edition of the Market Overview, we will summarize the last year in the gold market from the perspective of its fundamentals. This analysis should help investors better understand the gold market, and draw investment conclusions for the New Year. We will also present our gold outlook for 2018, presenting the base scenario and examining some black swans or potential triggers for the rally in the gold prices. We will focus on the impact of the macroeconomic trends, the Fed’s monetary policy and the U.S. dollar value on the price of gold. Given that in the long run the gold trade is generally about the confidence in the greenback, the fate of this currency may be the biggest driver in the gold market next year.

Read more in the latest Market Overview report.

menu subelement hover background