Muted Action Across Financial Markets as Investors React to Tax Cuts

The Tax Cuts and Jobs Act bill was approved by the House today, passing 227 to 203. GOP Senate leaders plan to vote on the tax overhaul legislation immediately, where its final passage will be implemented.

In almost hushed tones, investors and market participants are beginning to analyze the legislation which passed earlier this morning. U.S. equities traded fractionally lower with low-volume as the overall characteristic in U.S. stock trading. This muted action could be seen across a broad swath of financial instruments today, including the dollar, precious metals, and U.S. Treasuries.

Now that tax reform legislation has been passed in the house and moves to the Senate, analysts, traders, and investors are taking an initial look at key changes to the United States tax laws affecting individuals and corporations. In the case of tax reform legislation, the devil is in the details. As such, investors and analysts are slow to react with their financial investment dollars to this new legislation.

The net effect this legislation will have on gold varies depending on the analyst that is interpreting the tax cut. Some analysts believe that the tax cut will have a profound and positive impact on the economy and this heated up economy will result in increased inflation which would be bullish for gold prices. Others believe that this tax legislation will continue to fuel the risk-on environment that has been so prevalent in U.S. equities and thereby have a bearish influence on safe haven assets such as gold.

Gold has been trading in a narrow and defined six-dollar trading range today, with intraday lows occurring at $1262.30, and an intraday high at $1260.60. As of 3:30 PM Eastern standard time, gold futures are currently trading off $0.50 and are fixed at $1265.

Spot gold is also trading with like volume and a muted trading range. Spot gold is currently fixed at $1261.92, which is a +0.30 uptick on the day. There are almost equal gains resulting from a weakening U.S. dollar and losses resulting from sellers in the market leading to a fractionally unchanged market price.

Ever since gold prices traded to a six-month low last week at $1238, we have seen consistent and robust buying bidding up the precious yellow metal roughly $30. Although gold prices are three dollars below the 200-day moving average, recent price action has given more technical evidence that a key reversal occurred on Tuesday and Wednesday of last week as market sentiment subtly shifted from bearish to bullish.

Wishing you as always, good trading,