French presidential election and expectations for US interest rate hike cause gold to slump

Market report Michael Blumenroth – 28.04.2017

Weekly market report

The past week has brought on cold winds, and not just outside: already on Monday, gold faced strong headwind. This was due to the first round of the French presidential elections. Luckily, we were spared the worst possible scenario from a market perspective, which would have been a second ballot between the EU skeptics Le Pen and Melenchon. Instead, Emmanuel Macron received the greatest number of votes and will face Marine Le Pen in the final ballot. It is important to note that forecasts for the outcome were remarkably precise, and that they indicate a lead of 20 percentage points for Macron for the second round of votes.

Last Sunday’s election results caused European stock indices to soar, some of them to record highs (DAX®). In addition, positions in safe havens were abandoned, and the yen, Swiss franc and gold price depreciated. A contributing factor: rising expectations for further imminent key interest increases by the Fed.

Against the US dollar, the gold price took a fall from 1,285 US$/ounce on Monday at start of trading to 1,260 US$/ounce. It currently trades at a somewhat firmer 1,267 US$/ounce. Xetra-Gold followed suit, also because of the euro, which was boosted by the French election. From 37.75 €/gram, it fell to 37 €/gram and currently trades at 37.22 €/gram.

This afternoon, we will see the publication of a number of economic data from the US, including the GDP estimate for the first quarter. Next week’s Fed meeting will however have a much broader impact on the markets. Market participants are expecting indicators for an upcoming key interest increase already in June.

Have a sunny – and long, due to Monday’s bank holiday in Germany – weekend.

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