What Macron, May & Merkel polls mean for gold in 2017

The three major elections in Europe have presented gold with a triple set of variables. As France, the UK and Germany go to the polls this year the gold price looks set to benefit from the perceived uncertainty inherent in purdah and campaigning periods as well as the potential rise of extremist candidates.

Although former Front National leader and right wing extremist Marine Le Pen has been widely dismissed as likely to win in the final run-off against Emmanuel Macron on May 7th, her victory would follow the outsider upset trend set by Brexit and Donald Trump. Moreover, much of what she represents in a national, anti-immigration, anti-globalisation perspective is perceived as negative for markets and, by and large, good for traditional safe haven assets such as gold.  

Gold experts reinforced that view: “Sunday night’s results just reinforced the global political uncertainties which are at the present time the main support for the price of gold,” said Jean-François Faure, CEO of Aucoffre.This election, whatever the result may be, will reinforce the uncertainty we are experiencing, in particular since the Brexit and Trump results.”

Faure also pointed to the wholly unorthodox position of gold: “Even if M Macron were to be elected, which is likely to happen, this first round of the election reinforces the mixed feeling of the markets. These markets think they can do both. They have the increase of the rates on one side, while on the other side markets fear a growing political risk and wish to protect the risks with gold. Therefore, we have that unusual phenomenon of risings markets, interest rates and dollar as well as a raise in gold itself.”

For FX trades the upcoming elections look set to add to downward pressures on both the pound and the euro; although if current rulers win the currencies will strengthen. “Were Le Pen to win, the euro could easily lose 4-5 per cent of value as investors struggle to make sense of where the EU takes direction from next,” said Jonathan Watson, associate director at Foreign Currency Direct.

“Macron is expected to win however which will strengthen the euro. The UK election should be more straightforward as, if Theresa May wins, this should strengthen the pound. The German election will be an interesting battle: were Angela Merkel to win the euro should strengthen. The earlier fears over ‘Alternative for Germany’ winning have now subsided. Based on these trends GBP/EUR should fall assuming Macro wins before rising once Theresa May wins in June. This strength may last for some of the summer before attention in Germany sees the euro stronger if Merkel wins.”

However, unlike Faure, Watson doesn’t believe this presents a boon for gold. “Assuming Macron wins on 7th May, as does Theresa May and Merkel, the price of Gold should be largely unaffected by these factors.” Although he didn’t rule out $1350 an ounce this year should geopolitical uncertainties escalate and the dollar weaken.

Swiss banking giant Julius Baer also believes the factors weighing on gold are more likely to come from outside Europe following the strong showing for Macron on Sunday. “With Emmanuel Macron now the clear favourite to become president, the gold market’s focus shifts to the United States, where President Trump will announce details of his tax plans,” said the bank’s commodities research analyst Carsten Menke. “While our expectation of solid growth, a stronger dollar and rising interest rates in the United States are independent of these, Trump’s announcement could nevertheless bring the attention back to the favourable economic backdrop, denting bullishness in the gold market.” Menke says a government ‘shutdown’ will be avoided saying the risks to gold remained a strong dollar and interest rates. “Taking these factors together, we see some more downside for gold and expect prices to move towards our three-month target of $1,200 per ounce.”

However the variables inherent in elections remain, one trader in Germany told us the price of a Le Pen victory would be the collapse of the European Union. Faure says gold’s capacity as a hedge will help those wary of both FX and market fluctuations: “I think gold will play a role as a complementary currency within the next few years. People tend to re-invent money with the bitcoin, why don’t we just generate money with the original rather than a copy that does not work any more when you turn off the power? Gold has good days ahead because our complex world needs to become more resilient in order to overcome the difficult steps ahead. The French election is only one stage of a kind of giant obstacle course that has already started badly in 2016.”

Link to this article: : http://www.goldmadesimplenews.com/analysis/what-macron-may-merkel-polls-mean-for-gold-in-2017-13103/

Posted by on Apr 26 2017. Filed under Analysis, Gold News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

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