Speculation about President Donald Trump’s proposed tax cuts is expanding the wedge between the precious and industrial metals.
Gold futures posted their biggest two-day loss in seven weeks amid optimism that a possible plan to cut the U.S. corporate tax rate to 15 percent from 35 percent will boost company earnings. An improving outlook for the U.S. economy is also bolstering the demand prospects for industrial metals used in iPhones, refrigerators and electrical wiring. The 120-day inverse correlation between gold and copper is at the biggest since 2003.
Bullion rallied this year, helped in part by delays in Trump’s pro-growth agenda, tensions between the U.S. and North Korea, and political uncertainties in Europe. With Trump’s team preparing to lay out the details of the tax plan, Goldman Sachs Group Inc. expects the gold sell-off to continue over the near-term as borrowing costs rise and U.S. and global growth looks solid.
“Reports that Trump would propose a sharper-than-expected corporate tax cut have helped to boost U.S. stock prices, which may be helping copper” and curbing gold’s appeal, Tai Wong, a director of commodity products trading at BMO Capital Markets, said in an email.
“Supply-side stories have been influencing the short term copper price movement more than the demand side for a while,” Richard Fu, the London-based head of Asia-Pacific at Amalgamated Metal Trading Ltd. “As a barometer of the global economy, copper prices should be supported as the economy improves.”
Reference: Bloomberg
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