Last week was dominated by the Fed, but we also saw the initial budget proposal by President Trump. What does it mean for the gold market?

The recent days were full of important events. Besides the Fed hike and the parliamentary election in the Netherlands, Trump delivered his initial budget plan. In short, he proposed a modest increase in military funding offset by historic cuts to domestic programs.

The detailed analysis of the proposal is beyond the scope of this article – we will dig into that issue in the upcoming edition of the Market Overview. Here we would like to point out two important things. First, there is a lot of opposition from the Republicans against the proposal. It means that there is a bumpy road for the budget, which may increase the uncertainty and support the gold prices. Moreover, some members of Congress seem to approve the spending side, but disagree with the budget cuts. If they water down cuts, they will make the U.S. deficits larger, which could also affect the gold market.

Second, the proposal did not include any discussion of tax reform or infrastructure plans. As a reminder, the Wall Street had a narrative that Trump would introduce massive infrastructure spending and tax reform, providing fiscal stimulus to boost the economy. The lack of them in the budget plan – now we are told that Trump will provide an appropriate plan in May – may erode faith in that narrative. The postponed and softened stimulus could disappoint investors and provide support for the yellow metal.

The key takeaway is that Trump provided the initial budget plan. It’s a controversial document, which does not have the full support of the Republicans. And it provides no mention of any infrastructure spending or tax cuts. Hence, the Trump’s proposal is rather disappointing for the financial markets – thus positive for gold.