Last week, the House approved a bill dubbed the “Financial Choice Act.” What does it imply for the gold market? And what should we expect from today’s FOMC meeting?
On Thursday, when the investors focused on Comey’s testimony, Republicans voted to pass the Financial Choice Act which scales back or eliminates many of the regulations introduced by the Dodd-Frank bill. The bill passed 233-186 with 11 members abstaining. The legislation is believed by Republicans to provide regulatory relief for small banks and, thus, accelerate sluggish economic growth, while Democrats are afraid that the bill would remove needed safeguards against the next financial crisis. Anyway, who is right is somewhat meaningless right now, as the legislation is not likely to be approved by the Senate (Republicans lack 8 senators to pass the bill).
However, the approval of the bill by the House shows that the POTUS could introduce his pro-business agenda and deregulate the economy. Indeed, on Monday, the U.S. Treasury Department unveiled its long-awaited plan to roll back the U.S. financial regulatory burden. Hence, the bill and the report could revive the Trump trade, which would be negative for the gold market.
But the price of gold has recently been under the influence of today’s FOMC meeting. The Fed is widely expected to raise interest rates. Actually, with market odds of the hike at 99.6 percent, the U.S. central bank has no option but to deliver a lift. However, it could try to neutralize the hike by dovish forward guidance, as it has done recently. Having said this, investors should not expect substantial changes to the March FOMC projections, as the economic environment remains similar. Importantly, the Fed could also communicate the plan to normalize its balance sheet. Since 2016, the FOMC meetings have been positive for gold prices, as traders sold the rumor and bought the fact – if this tendency continues, the price of gold may rise after the meeting. Stay tuned!
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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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