FRANCE ELECTION, TRUMP TAX AND PRECIOUS METALS

The French Election is over and Macron seems to be the media's favourite to win in the Second Round. Will Le Pen stage a come back? In 2016, Remain was in favour to win vs Brexit and so was Hillary vs Trump. I still believe it could go either way and what's going to happen in the coming weeks could determine that.

On the back of the Macron's victory gold was smashed by almost US$20 in the early hours of trade but clawed back by the end of the day to end about US$12 lower. US$ fell as the Euro gained strength. In the next two to three days gold could be trading on the low side due to the expiry of options.

However with Trump unveiling a corporate tax cut of 20% from 35% to 15% effectively, the market optimism will quickly vanish as this would add US$2T in debt over the next 10 years.

Not only that, there is no backstop to the fall in tax revenue which the Freedom Caucus will not support and the Democrats, who are pro-company tax will also not support. So it is likely to be a grand plan by Trump but will be DOA (dead on arrival) when it comes to Congress.

Trump is also not giving in to scuttle his border wall in order to prevent a government shutdown on Friday which was what the Democrats demanded in order to continue to fund the government.

So despite some early of the week pressure on gold, as the fallout in the tax and funding unveil themselves, gold could be some upside, which could erase the downside on the miners at the beginning of the week as well.

Silver was hardly affected all through the day. More importantly some supply stress is anticipated as Peru which is the third largest producer saw production dropped by more than 10% in the most recent data, suggesting that the silver on the top surface have depleted significantly and without a further rise in price, going deeper to extract silver will not be cost efficient.