Last week, the U.S. Treasury issued a report on financial reforms. What does it mean for the gold market?
As we reported a few days ago, the Financial Choice Act was passed by the House. But it’s not the only important event on the deregulation front. On June 12, the U.S. Department of the Treasury unveiled its plan to overhaul the financial regulations implemented after the 2008 financial crisis, which hamper economic growth. As U.S. Treasury Secretary Steven T. Mnuchin said:
“Properly structuring regulation of the U.S. financial system is critical to achieve the administration’s goal of sustained economic growth and to create opportunities for all Americans to benefit from a stronger economy. We are focused on encouraging a market environment where consumers have more choices, access to capital and safe loan products – while ensuring taxpayer-funded bailouts are truly a thing of the past.”
The detailed 149-page report focuses on banks and credits unions. It suggests more than 100 changes to reduce regulatory burden, primarily for small community banks. For example, the plan, if accepted, would exempt smaller institution from the Volcker Rule and other Dodd-Frank’s restrictions. The plan also proposes major reductions to the power of the Consumer Financial Protection Bureau, an agency established by Dodd-Frank to prevent bad behavior of financial institutions. Importantly, to avoid deadlock in the Senate, most of the proposed changes would be made through regulators and administration rather than Congress.
The release of the report is important, because it shows that financial deregulation is on the way, despite the seeming chaos in Trump’s administration. This is rather bad news for the gold market. Regulatory relief could accelerate economic growth. And it signals the administration’s determination in enforcing Trump’s pro-business agenda. As a reminder, gold is often negatively correlated with the strength of the financial sector. Hence, the yellow metal could be hurt by regulatory and legislative changes supporting financial institutions. Stay tuned!
Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.