LAWRIE WILLIAMS: Gold’s wholly predictable drop after French vote
For once the opinion polls for the first round of the French Presidential elections were just about spot on, despite reports that around 25% of the electorate was undecided right up to the last minute. Macron was the opinion poll front runner and Le Pen second and the only thing which could have upset the markets would have been a Melenchon-Le Pen runoff which always seemed highly unlikely. Even though the media was full of comments about neither the Socialists nor the political Centre-Right being involved in the final defining vote on May 7th, Macron is still very much of the establishment, having been a minister under Hollande. So despite his break-away and formation of a new party it will still be very much of the old order and the chances of Le Pen prevailing in the eventual run-off will be very small indeed. Indeed the polls now suggest that Macron will take a massive 64% of the final vote. It will take a huge turnaround for Le Pen to overcome this kind of deficit, although for an ultra-Right wing leader to take over 30% of the French vote should send warning bells across Europe.
In the event, once the Macron and Le Pen run-off became the obvious conclusion to the first round of voting, gold dropped around US$15-20 in Asian and European trading as the result is seen as being very much for the status quo. Macron is very much a pro-European unity candidate while Le Pen, who is anti-EU and had promised a French in-out referendum, is not regarded as a serious Presidential prospect. But the fact that the drop was only of this relatively small magnitude will have offered some comfort to the gold bulls who will be looking to the fall in value of the dollar (the dollar index has fallen below 69 for the first time in five months), although it was largely dragged down by the rise in the Euro which put on nearly 2% as European markets breathed a sigh of relief.
We anticipate the markets will settle down now, unless there is some other big geopolitical blow-out. Gold may well claw its way back to $1,280, or even higher – after all the French vote was, in retrospect, much as expected. The result may be problematic for the UK pound though, as Macron is very much on the side of the ‘Eurozone must be supported at all costs’ – but as a new broom he may also bring in some recognition that the European project does have some serious fault lines. His policies on how to deal with the UK over Brexit are still largely unknown, but unlikely to be favourable to the UK’s negotiating position.
24 Apr 2017
About the author