The market for gold had apparently priced in only a small chance that Marine Le Pen would win in the second round of French elections last Sunday. However, the victory of Emmanuel Macron saw gold bounce upwards in Monday trading. Futures in U.S. gold rose to $1,227.10 an ounce, a quick .02 percent increase. The gold spot price chart also showed an uptick of .01 percent to hit $1,227.77 per ounce.
Risk Appetite
The potential for a Brexit or unprecedented election result in France had created some market concern and safe haven buying in the weeks leading up to last. Market anticipation that Macron would win the election last week spurred some consolidation and profit taking. 1
Despite his victory, the market is showing support above the $1,225 level. “…Physical demand remains pretty good right now…I’m not surprised to see gold supported around current levels,” noted ICBC analyst Tom Kendall.
With this election out of the way, the market is showing some new risk appetite, but there are still a number of questions about normalization of monetary policies in the EU.
Economic Challenges
Analysis of Macron’s victory notes that France and the EU currently face significant challenges. The EU has been plagued by a string of economic problems, and the European Central Bank has responded to them with quantitative easing and other questionable tools. Many market participants are questioning how the Central Bank will implement monetary policy reforms and what their impact will be on the euro and inflation.
Macron campaigned on providing support to the EU and the euro, but analysts note that he will not have the backing of a major party. This will limit his ability to implement changes, including his promised cut in corporate taxes and government spending. France spends over 57 percent of its GDP–more than any other OECD nation. A failure by the new administration to reduce the nation’s expenditures could mean continued deficit spending and elevated risk for the country and the EU. This would prove bullish for safe haven assets like gold.
Safe Haven Investments
Ongoing political and economic uncertainty in the EU has fueled safe haven investment in gold. While the outcome of the election in France was welcomed, it does nothing to resolve the very real financial threats that remain. This is a classic situation where investors have to differentiate between short-term market volatility driven by news and long-term factors creating future price increases.
The advice from financial experts remains the same: diversify portfolios with gold to hedge against ongoing economic and political uncertainly at home and abroad.