Gold Eases on French Election

April 24th, 2017 by

french-election

The focus of the markets on Monday was the results from the preliminary round of France’s presidential election. The polls showed that Emmanuel Macron, who is seen as the moderate or centrist candidate, finished first in the pack with 24% of the vote. Macron came in ahead of right-wing National Front candidate Marine Le Pen, who finished second in the polls.

In response, much of the safe-haven flight into gold eased up in early trading. The gold price retreated about $15 per ounce, or 1.15%, to trade around $1,269/oz. Spot silver was also lower, dropping about 0.67% to $17.75/oz.

Sigh of Relief in Europe

The strong potential of a successful candidacy for Le Pen is the main source of anxiety over the French election. Like her right-wing counterparts in other parts of Europe, Le Pen has emphasized the tyranny of the European Union and her intention to hold a referendum on France’s membership in the bloc. Meanwhile, Macron’s party offers a center-right platform in opposition of the unpopular socialist government currently in power.

Unlike the Brexit vote or the U.S. presidential election, the published polls leading up to the first round of voting in France’s election were quite accurate. Here are the results compared to the aggregate of polls compiled by Financial Times last week:

Candidate         Estimate          Actual

Macron                24%                23.9%

Le Pen                  23%                21.4%

Fillon                    19%                19.9%

Mélenchon          19%                19.6%

Hamon                  8%                   6.3%

Others                   7%                      8%

marine le pen

Marine Le Pen. Photo: Olaf Kosinksy / Wikipedia [CC BY-SA 3.0 DE]

Macron and Le Pen will move on to the second round of voting in May where the candidates square off head-to-head.  The reason the markets (particularly gold) have been so sensitive to Le Pen’s fortunes is because the outcome of the French election could have huge implications for the EU and the world order as a whole. Interestingly, Macron is running as an Independent, so even he represents a potential departure from France’s recent history of alternating between Socialist and Republican governments.

With the positive result for Macron, stocks surged sharply higher on Monday. France’s CAC 40 index gained over 4.3% while the EURO STOXX 50 trailed not far behind at 3.8%. Wall St and London’s FTSE 100 also pointed over 1% higher in early trading.

The euro was the clearest beneficiary of the election results, jumping to a five-month high. The common currency’s climb came at the expense of the Japanese yen, which saw a great deal of safe-haven demand evaporate. The euro gained roughly 2% against the yen in the wake of the results.

charting gold price

While gold also saw demand dry up as some degree of fear over the French situation abated, the dollar was also one of the losers in this trade. The greenback was down almost 1% during Monday’s session, falling below 99.1 on the DXY index. The fact that gold hasn’t posted bigger losses is partly due to the weakness in the dollar. On the downside, the slide for the yellow metal could bring prices as low as $1,253/oz, which is gold’s current 200-day moving average (200-DMA). A decisive move below this mark would be a technical signal of larger losses for the precious metals, so traders and investors should be watching to see what gold prices do as they near this key level.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.