American stocks fell more than 1 percent on Tuesday. What does it mean for the gold market?

The day before yesterday, Wall Street suffered its worst day since the presidential election. After the impressive rally , the U.S. equities plunged more than 1.2 percent, as one can see in the chart below. It has been the first such loss in 110 trading days.

Chart 1: S&P 500 Index over the last three days.

(Click on image to enlarge)

What happened? Well, it seems that the main reason were concerns about whether Trump will be able to pass his reforms. Last week, the new administration published its budget plan. It quickly turned out that the proposal is probably dead on arrival. And the budget blueprint suggests that infrastructure spending may be much less than expected. Moreover, Trump had some problems to gain support for his health care bill. Hence, investors started to worry if this fight could delay others key elements of Trump’s pro-growth agenda, such as tax cuts. These fears led to a weakening of the dollar and a rally in gold.

Now, it seems that today’s vote in the House of Representatives on the American Healthcare Act, which repeals some elements of Obamacare, will be a litmus test of Trump’s ability to legislate in Congress. It may also trigger an important move in the gold market. If the bill passes, the reflation trade may return, which could send gold prices down. On the other hand, if the bill fails, the faith in reflation and Trump’s pro-growth actions should deteriorate, pushing the price of gold up.

To sum up, U.S. stocks and the dollar declined on Tuesday due to the waning Trump rally. Investors fear that the expected pro-growth moves will come later and softened, if at all. The vote on Trumpcare is scheduled today – if it does not pass, the other parts of the new administration’s agenda will be delayed. Gold should shine then.