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Tax Reform, Beige Book, Fed Chief, and Gold

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This week, quite a few interesting things happened. How could they affect the gold market?

Wednesday was full of important events, which could have a non-negligible impact on the gold prices. First, it turns out that the Republicans would have enough votes in the U.S. Senate to pass a budget which is key to introducing tax reform. This is because a budget approved by both the Senate and House of Representatives would allow the Republicans to use a reconciliation procedure, which enables to pass tax legislation with a simple majority, rather than the 60 votes normally required. This is bad news for the gold market, as the strengthened odds of introducing tax reform translate into a more bullish stock market and expectations of a more hawkishFed .

Yesterday, the U.S. central bank published thelatest Beige Book . The report showed that economic activity increased in September through early October, with the pace of growth split between modest and moderate. Importantly, it also indicated that inflationary pressures have remained modest since the previous report. The report confirms thatinflation is still subdued, but it should not significantly alter the Feds stance. The impact on the gold market should be minimal.

When it comes to other data, the housing market reflected by tumbling housing starts and building permits showed weakness in September. But gold was little moved. On the other hand, the Empire State Index jumped to a three-year high in October, while industrial production rebounded (despite hurricanes) in September after two straight declines. On balance, the current economic outlook seems to be positive, which is not good news for safe-havens, such as gold.

However, the price of the yellow metal may be driven not only by macroeconomic developments, tax reform prospects and the market odds of a Fed hike in December, but also by speculation over the next Fed chief. As it is widely known, there is a short list of candidates: incumbent chair Yellen, incumbent governor Powell, Cohn, Warsh and Taylor. Recently, the odds of the latter increased, which is bearish for the gold market, as he is considered to be a monetary hawk. Now, Powell leads the polls, but a lot may happen here. Stay tuned we will analyze the profiles of candidates and their likely impact on the gold market in the near future!

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Thank you.

Arkadiusz Sieron
Sunshine Profits Gold News Monitor and Market Overview Editor

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About the author

Arkadiusz Sieron is a certified Investment Adviser. He is a long-time precious metals market enthusiast, currently a Ph.D. candidate, dissertation on the redistributive effects of monetary inflation (Cantillon effects). Arkadiusz is a free market advocate who believes in the power of peaceful and voluntary cooperation of people. He is an economist and board member at the Polish Mises Institute think tank. He is also a Laureate of the 6th International Vernon Smith Prize. Arkadiusz is the author of Sunshine Profits’ monthly Market Overview report and daily Gold News Monitors, in which he keeps subscribers up-to-date regarding key fundamental developments affecting the gold market and helps them prepare for the major changes.

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