Gold is up modestly, having given back more significant gains seen earlier in the session. However, the yellow metal still appears to be on track for its first weekly gain in the last four.
News that some last-minute concessions were being made on the tax bill to win the support of GOP holdouts, helped the dollar recover intraday, knocking gold off the highs for the week.
The final version of the tax bill is expected to be made public later today. Given that the plan is not terribly popular with the general public, perhaps it’s not surprising that it will drop late on a Friday. Congress would then likely vote next week and get the bill to the President before the Christmas recess.
Congress is also going to have to come up with another temporary spending measure and kick the can on the debt ceiling on or before December 22 as well. The tax bill is expected to add the maximum $1.5 trillion to the national debt over the next 10-years.
However, it may prove to be much more than that if tax cuts fail to spark the fast growth that proponents are anticipating. As noted in this morning’s Snapshot, the Fed’s economic forecasts that came out earlier in the week, reflect some serious doubts.
While the central bank now projects 2.5% GDP in 2018, they see the pace of growth moderating to 2.1% in 2019 and 2.0% in 2020. The Fed kept their long-term growth forecast steady at 1.8%.
The Fed definitely tends to be pretty optimistic on their forecasts. However, their forecasts suggest they see the fiscal impact of the first major tax overhaul in more than 30-years as negligible and short-lived.
Without any significant and sustainable fiscal stimulus, the onus is going to fall right back on the Fed to support growth with easier monetary policy. In other words, the tightening cycle that began a year ago may have to be paused again, or perhaps even reversed.
That realization would weigh on the dollar, boosting gold in the process. The yellow metal needs to climb back above the 200-day moving average (presently around 1268.52) in order to ease near-term pressure on the downside. At that point, renewed tests above $1300 would become likely.