Trump administration’s planned “phenomenal” tax reform dampens gold price

Market report Michael Blumenroth – 10.02.2017

Weekly market report

Yesterday afternoon I was looking forward to happily reporting a new yearly high for the most precious of metals, but then came Donald Trump: he sent the gold price on a 20 dollar nosedive.

But first things first: to begin with, market participants are currently continuing to focus on the question of how the new US government will further proceed in their economic policy. After all, the stock markets and US dollar soared alongside bond returns at the end of last year after Trump had announced enormous infrastructure measures and tax reliefs. All of these market movements tend to weigh on the gold price.

Following his inauguration in January, the new president initially set his priorities elsewhere – his Mexican wall, an entry ban for certain nationalities as well as this week’s somewhat bizarre feud with Nordstrom over their dropping his daughter’s fashion label. Any plans concerning tax and infrastructure seemed to have lost their urgency. The week started out with a weakening US dollar and US returns, which came to the benefit of gold. Traded at 1,213 US$/ounce last Friday, it dropped to 1,207 US$/ounce after publication of US labour market data in the afternoon. Since the beginning of the week, however, it climbed continually and reached a weekly high on both Wednesday as well as Thursday afternoon, which was also a record value for 2017 so far, at 1,244.50 US$/ounce. But then came Trump. During a meeting with the airline industry’s top management, he announced that a major statement on tax policy would be issued in the coming weeks. “We’re going to be announcing something over the next, I would say, two or three weeks that will be phenomenal in terms of tax,” he said.

This was understood as a start signal for the continuation of the US stock market rally as well as for a rise of the US dollar. As a consequence, gold dwindled downwards and currently trades at 1,223 US$/ounce.

Eurozone investors also saw a good weekly gain, which was stifled in good part by Trump’s statements. From 36.30 €/gram a week ago, Xetra-Gold climbed to its weekly high of 37.44 €/gram on Wednesday. Yesterday afternoon, the gold price in euro also started to drop. Xetra-Gold currently trades at 36.95 €/gram. 

We are now lying in wait regarding the new US administration’s economic policy. It is hard to foresee the future development of gold. A rule of thumb: if the US dollar and returns drop, the gold price rises, and vice versa.

Please note that next week’s report will already be published on Wednesday. 

I wish all our readers a happy weekend.

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