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BFS Forex: The U.S. senate passes a trump tax reform, where USD and gold go

The trump tax reform has won the U.S. senate for nearly a year, and the first major victory of the trump tax reform bill will be good for USD. How will it affect gold prices?

Holger Zschaepitz, senior editor of Germany's Le Monde newspaper, issued a tweeter on December 5 saying that Trump tax reform is the third major change in U.S. tax law over the past 40 years, which will push USD forward, but not the way people expected it. After Reagan tax reform in 1986, USD index plunged 16%. USD fell 15% after George Bush tax cuts in 2003.

October 22, 1986, Reagan signed the tax reform bill, USD fell about 22% in the next 6 years.

After Bush signed the Economic Growth and Tax Mitigation Bill on June 7, 2001 and the law was continued in 2003, USD dropped about 37% over the next seven years.

The tax reform passed by the Senate will likely increase deficits by more than $ 1 trillion. A tax reform bill that adds so many deficits will at least not support USD.

Of course, these cannot be viewed in isolation. USD reaction also depends on other factors, such as the euro area, China, Japan and the Federal Reserve interest rate policy.

USD may not necessarily fall as the global currency depreciation is likely to get more frantic elsewhere.

Global currency devaluation is in progress. Other parts of the situation may become more crazy, so USD may not necessarily fall.

A competitive currency devaluation could become a major beneficiary of an earlier party that became important.

On August 15, 1971, Nixon announced USD was decoupled from gold and closed the window of the gold exchange system. That time, gold 43.16 USD /ounce.

January 21, 1980, gold closed at 850USD /ounce. This is the highest market value in decades.

March 1980, the highest inflation in the United States reached 14.8%, the Fed led by Volcker raised the federal funds rate to 20%, while in 1979 the federal funds rate averaged only 11.2%. On June 1, 1981, the direct cause of the plunge in gold was not the rise in interest rates but the rise in interest rates convinced the public and the market that everything was under the control of the Federal Reserve.

On May 7, 1999, the Bank of England announced the sale of half its gold reserves, the largest gold sale in Britain since the Napoleonic wars. At that time the price of gold was 282.4 USD / ounce. The sharp sell-off by the Bank of England plunges the price of gold by more than 10% before the first auction on July 6, 1999. As many gold traders short, gold hit a low of 252.8 USD/ ounce on July 20. Often referred to as Brown's Bottom, it was named after Gordon Brown, then British Treasury secretary.

August 23, 2011, with the outbreak of the debt crisis in Europe and the Federal Reserve launched a series of quantitative easing measure, gold hit a high of 1923.9 USD.

July 26, 2012, the ECB President Draghi once said that "desperate to defend EUR." Gold closed at $ 1,614. Confidence in the central bank temporarily restored.


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