On Wednesday, Trump gave a speech in Cincinnati. What does it imply for the gold market?
Trump’s speech in Cincinnati was an important event, as the POTUS presented his infrastructure plan. As Vice President Mike Pence said as he was introducing Trump, “Starting today, this president will take historic steps to keep his promise to rebuild America.”
Trump proposed $1 trillion for infrastructure – that amount would consist of federal government spending of $200 billion in cash. The rest, $800 billion, would be provided by state, local and private investment spurred by tax credits. Trump did not provide any details, but proposed a privatization of the air traffic control system, strengthening of rural infrastructure and repairing bridges, roads and waterways. He said:
“America wants to build (…) “There is no limit to what we can achieve. All it takes is a bold and daring vision and the will to make it happen.”
The increased spending on infrastructure could accelerate GDP growth, which should be negative for gold. However, the proposal might be considered as disappointing, as it assumes “only” $200 billion and lacks any details. Therefore, the speech could be positive for the gold market, with others things held constant. But others factors were not held constant – gold prices fell on Thursday, as one can see in the chart below.
Chart 1: Price of gold over the last three days.
The reason is that yesterday’s three important risks did not materialize. Comey’s testimony did not bring any major surprises. And, according to the exit polls, the Tories will win the election (but will be short of a majority). Last but not least, the ECB’s meeting was hawkish. Although Draghi left interest rates unchanged, he said that policymakers removed the lower rate bias as “deflation risks have definitely gone away.” Surely, it could strengthen the euro against the U.S. dollar. But it could also strengthen the global reflation narrative and thus send gold prices lower. Now, with major risks behind us, the outlook for gold should be a bit clearer. On Monday, we will provide a more detailed analysis of the recent events in the context of the gold market! 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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