Gold retreated further to begin the week, setting a new 6-week low at 1271.15 amid heightened risk appetite and a firmer dollar. There has also been no significant heightening of geopolitical tensions of late, which may be also weighing on the yellow metal.
December rate hike expectations have eased somewhat in the wake of last week’s soft inflation data, but investors still seem to be thinking the Fed is more likely to tighten than not. Mixed data today didn’t offer any clarity on that point.
Minneapolis Fed dove Kashkari thinks the central bank should be cautious until inflation gets back to 2%. However, later today Dallas Fed hawk Kaplan will likely offer the contrary opinion.
Further stoking risk appetite is the GOP tax plan, which includes a significant cut to corporate taxes. While stocks are perhaps understandably optimistic about the likely impact on profits, there is also a reasonable concern that the lower tax revenue is going to lead to bigger deficits and a bigger national debt.
Amid the initial euphoria of lower taxes for some, little attention is being paid to the downstream implications for deficits, the debt, Treasuries, the dollar and by extension monetary policy. Can the Fed really pursue tighter policy if the tax plan is going to blow a hole in the budget?