Yesterday, Donald Trump unveiled his economic plan. What does it mean for the gold market?
In a speech given at the Detroit Economic Club, the GOP presidential nominee announced a new version of his economic plan. Trump focused on the U.S. tax system. He proposed a deduction of child-care expenses from taxes and called for reducing the corporate tax rate to 15 percent from the current 35 percent. Trump also proposed a change from seven personal income-tax brackets to only three, at 12, 25 and 33 percent. It means that he modified his earlier proposal of a top rate at 25 percent. Therefore, his recent plan is more fiscally sound, which is negative for the gold market, as it may reduce concerns about the economic consequences of his possible victory.
Interestingly, he used the same brackets the House Republicans proposed. It seems that Trump changed his plan to be more in line with policies supported by Republicans in Congress after a rocky week in which he sparred with the party leader. Indeed, last week was disastrous for Trump whose odds of victory plunged from 45.7 at the end of July to 40.1 yesterday, according to RealClear Politics.
Trump also proposed a moratorium on new regulations and a reduction of the regulatory burden. So far, so good for the country. Lower taxes and fewer regulations should help the U.S. economy. It goes without saying that it is bad news for gold.
However, the GOP nominee also wants to renegotiate the North American Free Trade Agreement and withdraw from the Trans-Pacific Partnership, which would reduce trade and economic activity. Renegotiating trade deals is likely to cause a lot of uncertainty and disruption as entrepreneurs become unsure what sort of competitive environment they will be operating in. Moreover, Trump suggested that he would tolerate wider deficits to spend more on veterans’ health, military and infrastructure. Higher budget deficits could decrease the greenback’s appeal and support the yellow metal.
The take-home message is that Donald Trump presented his new economic plan to give his polls a fresh rebound. Trump’s proposal of tax reform is certainly better than Hillary Clinton’s ideas on this issue and a bit more fiscally sound than his earlier version. Although he reiterated his calls for renegotiating trade deals, on balance his proposals came to be more in line with mainstream policies, which may ease some worries among investors and reduce the safe-haven appeal of gold. On Thursday, Hillary Clinton will outline her economic vision – therefore, we could be able to say more about the presidential candidates’ economic views and their impact on the gold market.
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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.
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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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