Gold Fails To React To 1st Quarter GDP

The Market Gage - Dillon Gage's Precious Metals Newsletter

The price of Gold shows no reaction to the 1st quarter GDP number released this morning. Real gross domestic product only increased at an annual rate of 0.7 percent, compared to the fourth quarter 2016 which showed an increase of 2.1 percent.

A weak economy reduces the chance the Fed will have the ammunition to raise rates at the June meeting as expected by some on the street. And with that bullish news the price of gold just sits in hibernation mode.

What is going on in Washington? On Fox business today, Texas Representative Lou Gohmert said he believes there are people in the Republican Party that want to see President Trump fail. Case in point, the Republicans had hoped they would be able to vote and pass a health care bill today and after Ryan spoke with his party members he realized that a vote today would be a waste of time. So the health care bill, something that the president promised he would get done as soon as he got into office, is back on the shelf.

Now if you think he got nowhere with that promise, what about the promise to the American people he will significantly reduce the corporate tax rate and give a real tax break to middle class America? Anyone want to guess the odds of getting this done? Yes, recent corporate earnings on Wall Street have been promising but don’t you think the real reason for the rally on Wall street has been his promise to give everyone, especially the big corporate giants, a significant tax break? I wonder how long it will take for the equity market to wake up and see there is total gridlock in Washington and tax relief is miles away. At that point one could expect a nice rally in the price of gold as everyone in the equity market will be heading to the exits.

Now to Trump’s proposed tax plan. If you work for a Wall Street firm or run a small business you might be cheering, otherwise here is what some tax scholars are saying the majority of us will see.

They estimate that the top 1 percent of households would see a 14 percent increase in after tax income, while low and middle-class Americans will see gains of just 1.2 percent to 1.8 percent. Doesn’t sound like the enormous tax benefit he promised. First let me be clear, I’m only sharing what I read, I don’t belong to any political party.

Here’s the details:

As reported in USA Today, the standard deduction, currently $6,350 for single people and $12,700 for married couples, would double. As a result, many more low to moderate income families would pay no taxes. But all other deductions, except for mortgage interest and charitable contributions, would be eliminated, including state and local taxes and medical expenses and the property tax deduction is also on the chopping block.

Removing the state and local deductions would have the biggest impact on middle class America.

Another so-called thorn in the side for most wealthy Americans, is the Alternative Minimum Tax. This tax would be eliminated. Unless your income is in the highest so-called bracket, this elimination would not benefit you.

There is so much more on the table including less tax brackets to simplify the system. So please familiarize yourself on what is being proposed.

The idea was to simplify the tax plan, but at this point the jury is still out on whether that will be accomplished.

I share this information with you because the new rules will have a direct impact on the Dollar and Equity markets. As an informed investor, understanding what’s ahead is essential to making intelligent investment decisions.

Just some news from over the pond that effects the price of gold:

On Thursday the European Central Bank left its benchmark rate at zero and the deposit rate at minus 0.4 percent. They will continue to buy 60 billion Euros in mostly government bonds under their quantitative easing platform that should run to years end.

I’m sure this decision was made as the key political risk of France leaving the EU for the most part is now off the table.

ECB President Mario Draghi said yesterday, “Growth is improving. Things are getting better.” He sees record low interest rates and the ECB’s asset purchasing programs as the main reason for continued growth.

Some ECB officials are not sharing Draghi’s optimism until the French election is decided. Sounds just like our Federal Reserve panel here in the states.

I’ve said enough today, but I can’t leave you without saying,

Have a wonderful Friday.

Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals. This document is for information and thought-provoking purposes only and does not purport to predict or forecast actual results. It is not, and should not be regarded as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein are current opinions as of the date appearing in this editorial only and are subject to change without notice and cannot be attributable to Dillon Gage. Reasonable people may disagree about the opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate its ability to invest for a long term especially during periods of a market downturn. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. This information is provided with the understanding that with respect to the opinions provided herein, that you will make your own independent decision with respect to any course of action in connection herewith and as to whether such course of action is appropriate or proper based on your own judgment, and that you are capable of understanding and assessing the merits of a course of action. You may not rely on the statements contained herein. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisors with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.