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2017 U.S. Elections, Tax Reform, and Gold

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On Tuesday, Democrats won some regional elections. What does it mean for the gold market?

Election night 2017 was positive for Democrats. They won convincing victories in governor races in Virginia and New Jersey. They also took control of the Washington state Senate and picked some seats in the Virginia House of Delegates. Democrats also triumphed in some mayoral races, most notably in New York City.

The elections were seen by many analysts as referendums on Trump and his policy. The results are considered as the reflection of the presidents weak approval rating. As one see on chart below, his popularity started a downward trend in September.

Chart 1: Trumps approval rating (taken fromWikipedia ).

Trumps approval rating

However, the incumbent presidents party always struggles to defend its position in off-year and midterm elections. Anyway, the results are a warning for Republicans who have to prepare for the mid-term elections next year.

What does it all mean for the gold market? First of all, the chart above shows that the price of gold is not necessarily the gauge of (dis)trust in Trump. Gold prices have declined since September, despite the waning popularity of the incumbent president.

But what is really important is how the 2017 elections will impact the prospects of tax reform. If some Republicans use them (and an increasingly unpopular president) as cover to vote against the tax plan, then the U.S. dollar would decline and the yellow metal should shine. However, these elections may be a wakeup call for Republicans that they really need to deliver their campaign promises and deliver tax cuts. In that case, thegreenback should rise, while the price of gold could struggle.

Which scenario is more likely? We bet that the latter, as its too early to abandon the president (not even a year has passed) and Republicans should feel the pressure to deliver at least some of their promises before the midterm elections. They failed to reform healthcare, so they should be more motivated to change the tax code.

Meanwhile, a U.S. Senate tax-cut bill is expected to be unveiled today. As it differs from the version of the House of Representatives, it may complicate Republican efforts. If Wall Street becomes more skeptical about tax reform, gold may rise (and vice versa). Stay tuned!

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Thank you.

Arkadiusz Sieron, Ph.D.
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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