Emmanuel Macron won the French presidential election. What does it mean for the gold market?
On Sunday, Emmanuel Macron won the runoff vote by a decisive margin. He got 66.10 percent of the votes, about twice as many votes as Marine Le Pen. In line with expectations, the French strategically voted against the leader of the National Front. Some analysts claim that populism has been beaten, but the truth is that Marine Le Pen got twice as many votes as her father, Jean-Marie Le Pen, in 2002. Hence, populism is on the rise, actually.
Anyway, Macron’s triumph removes the political risk associated with Marine Le Pen who called to pull France out of the Eurozone. Fading concerns about the future of the Eurozone weakened the safe-haven demand for the yellow metal. Hence, we could see the downward pressure in the gold market in the near future. The price of gold declined on Monday, as one can see in the chart below.
Chart 1: Price of gold over the last three days.
On the other hand, the outcome of the French presidential election may strengthen the euro against the U.S. dollar, as the ECB is now expected to have more room to tighten its monetary policy. A weaker greenback should support the shiny metal.
The key takeaway is that Macron will become the next French president. It should be negative for the gold market in the near future, as it removes the risk of a potential Frexit. With a significant decline in volatility and improved risk sentiment, the safe-haven appeal of gold is reduced. Now, with the French elections behind us, investors can start to focus on other factors, like the June FOMC meeting. The market odds of an interest rate hike in June rose from 78.5 percent before the weekend to 87.7 percent on Tuesday. These hawkish expectations could exert downward pressure in the gold market in the near future, but investors should be aware that the June hike is almost fully priced in.
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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.
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