Gold Rebounds As Market Digests Trump’s Tax Plan
Gold prices rebounded from two-week lows in after-hours trading Wednesday, following President Donald Trump’s proposal to slash tax rates for businesses and on overseas corporate profits.
Spot gold, on Kitco.com, was up 0.40% at $1,269 an ounce at the time of publication, while June Comex gold climbed 0.31% to $1,271.10 an ounce. The U.S. dollar and U.S. Treasury yields, on the other hand, gave up earlier gains.
Trump’s tax plan proposes to cut the income tax rate paid by public corporations to 15% from 35% and slash the top tax rate assessed on pass-through businesses to 15% from 39.6%, according to the White House.
Analysts expressed serious concern over how this proposal might actually get passed.
“This plan looks rich at first take in terms of the costs in revenues, and fiscal hawks in Congress might not fully buy into the claim that accelerated growth will ‘pay’ for the cut, particularly in a U.S. economy already closing in on the limits of full employment,” CIBC World Markets economists Avery Shenfeld and Nick Exarhos said in a research note. “Passing something close to this package will be a challenge.”
Chief U.S. economist for Capital Economics Paul Ashworth said that the “new” tax plan is not much different from Trump’s old economic plan revealed during the election campaign.
“Even with dynamic scoring, however, the old plan was expected to increase the Federal budget deficit by $7 trillion over the next decade. For that reason alone, this plan is never getting approved by Congress, particularly not through a budget reconciliation that requires ten-year revenue neutrality,” Ashworth wrote.
Ashworth added that he only expects a much smaller tax cut package to pass, adding that it will likely only happen by early next year.
Changes to the U.S. tax rate could affect gold since a reduction in taxes could fuel further gains in risk assets, Long Leaf Trading founder Tim Evans told Kitco News in an interview.
Evans added that so far he remains positive on gold over the long run in light of the new tax proposal.
“It is a but presumptions to assume that this tax proposal is actually going to turn into legislation and ultimately gets signed into law. The track record that we have here for the first 100 days of the Trump administration is that we haven’t seen any major legislation passed yet.
The proposal that came out today is probably going to look very different upon becoming law,” Evans said.
Long Leaf Trading founder also noted a bit divergence in the normal relationships when it comes to gold. “If you look at the dollar and gold today, the move in the dollar would suggest a much larger move lower in gold. But gold, relatively speaking is hanging in there.”