President Donald Trump is just days away from completing his first 100 days in office, and it’s been an eventful few months to say the least, especially for the precious metals.
“It is also worth noting that prices are also up by a similar amount in RMB and euro terms, showcasing that this price rise has not been a function of dollar weakness,” Ross Strachan, precious metals demand analyst for Thomson Reuters GFMS, told Kitco News Tuesday.
Despite a recent pullback in prices following the first round of the French Presidential election, both metals managed to rally to five-month highs last week, hitting $1,297.40 and $18.655 an ounce. In other words, just last week, gold prices were up over 7% and silver was up 9.5% since January 20.
Strachan’s comments, which came out just ahead of Trump’s 100-day mark on April 29, also highlighted that investor interest in the metals has grown since Trump’s inauguration, noting that net long positions on COMEX rose by 41% for gold and 67% for silver.
However, he explained that the rallies seen in both metals since January 20 shouldn’t be attributed entirely to President Trump.
“We would not suggest that this rally is solely a function of the arrival of President Trump; an improvement in Indian demand has also played a role,” he said.
“A rise in geopolitical fears, however, not least due to events in Syria, has clearly played an important part in the price increases – as we had forecast they would – and this has encouraged investment flows into both metals,” he added.
That said, the London-based analysts said his short-term outlook on gold remains slightly grim, “a little bearish, with technical headwinds and Indian demand having started to soften after a strong start to 2017.”
“Furthermore, the concerns emanating from European elections have lessened in recent weeks with Macron leading the first round of the French presidential polls. Indeed, the introduction of a Good & Services Tax in India in the middle of this year is likely to cause somewhat of a hiatus in purchases from that crucial market.”
Over the longer term, Strachan is a little more optimistic on gold, noting that risks of rising geopolitical tensions, further delays in Trump’s tax reforms and a pickup in Asian demand should bode well for the metal.
“[W]e expect prices to be recovering at the tail end of the year as Asian buying improves again and mine production slides, while geopolitical tensions spark fresh western investment buying also,” he said. “Overall, we expect gold to average $1,267 and to peak at $1,375 this year.”
Gold prices fell to a two-week low on Tuesday as markets became less concerned that far-right leader Marine Le Pen would win the French presidential election, increasing investor appetite for risky assets such as stocks while denting bullion.
Spot gold was down 0.9 percent at $1,264.25 an ounce by 2:53 p.m. EDT (1853 GMT), on track for its weakest one-day performance since March 2. It fell earlier to $1,261.41, the lowest since April 11.
U.S. gold futures settled down 0.8 percent at $1,267.20.
A gauge of world stocks notched a record for a second straight session, spurred by speculation about U.S. tax reform and relief at French election results, while the 10-year U.S.
Treasury yield rallied to a two-week high.
Business-friendly centrist Emmanuel Macron won the first round of the French vote on Sunday and opinion polls indicated less support for Le Pen.
“We’ve moved from having multiple numbers of positive drivers for gold last week when yields were on the defensive and we had multiple geopolitical risks,” said Ole Hansen, head of commodity strategy at Saxo Bank. “But now with the French election (first round) behind us, there is a bit of a surge of risk-on coming back to the market. The main worry was a strong performance by Le Pen.”
Gold is often seen as an alternative investment during times of political and financial uncertainty.
Heightened security risks provided some support. North Korea conducted a live-fire exercise on Tuesday as a U.S. submarine docked in South Korea in a show of force.
Hansen said gold would trade cautiously this week before a Friday deadline for the U.S. Congress to pass a spending bill funding the government through September or risk a government shutdown.
Holdings of SPDR Gold, the world’s largest gold-backed exchange-traded fund, rose six tonnes in the past two sessions.
Silver dipped 1.7 percent at $17.59 an ounce after touching a one-month low at $17.51.
“Silver’s fundamentals look to be price supportive, but overextended investor positioning poses downside risk near-term,” said Standard Chartered in a note. “Investor and industrial demand tend to drive silver prices but the supply side has now started to turn. We estimate supply fell by just under 1 percent last year, and will decline at a similar pace this year.”
Palladium was up 0.2 percent at $796.55 while platinum inched down 0.4 percent to $955.30 an ounce.
Asset manager ETF Securities said in a note it expects “modest upside” for platinum given “expectations for continued global recovery in growth and manufacturing, and a record discount to the gold price.”
Major bear Goldman Sachs is at it again, telling investors not to expect a gold turnaround any time soon.
Gold Heading To $1,200 As Trump Tax Cuts Loom“Looking ahead, we expect that gold will come under pressure this week, and over the next three months, with a near-term target of $1,200/oz,” noted Max Layton, the bank’s commodities research analyst, in a recent report.
“In fact, this week is likely to see some significant bearish catalysts materialize in our base case.”
Despite skepticism in the marketplace, Goldman Sachs said it expects President Donald Trump’s tax reforms to come sooner rather than later. The analysts noted that the President’s failure to repeal the healthcare bill last month, which helped boost gold prices, is not necessarily indicative of further delays when it comes to the promised tax reform.
“Our economists think the read-across from the failure of health care reform is limited. It is politically much easier to deliver a net benefit to the electorate via tax cuts than to take away health care coverage,” the report said.
A federal tax cut announcement is expected on Wednesday and it could impact the timing of the next Federal Reserve interest rate hike, which could be bearish for gold.
“We still see a tax cut of around 1% of GDP as likely. Announcement of the tax bill on Wednesday could be a catalyst to reprice market expectations,” said Layton, adding that the announcement will put downside pressure on the yellow metal.
Other pressure points can come from stronger-than-expected U.S. data releases on Friday. “We expect U.S. GDP and personal consumption numbers to come out on Friday to be 1.4% and 1.3% respectively, stronger than consensus of 1.1% and 0.9%.”
One major upside to Goldman’s gold outlook is higher safe-haven demand from growing tensions around North Korea, which boosted gold prices to multi-month highs in April.
“The main risks to this bearish near-term outlook are, in our view, increased military tensions in North Korea and slower-than-anticipated US (and global) growth; however, these developments are not our base case.”
Goldman Sachs remains “agnostic” in its 12-month forecast for gold.
“Our primary commodity view is one of a stronger cyclical backdrop; and how the Fed responds to this environment, and hence the path real interest rates follow, is still uncertain. Accordingly, we maintain our 12-month target at $1250/oz,” said Layton.
On Tuesday, gold prices hit a two-week low, with June Comex gold settling at $1,265.50, down $12, as investors embraced a risk-on sentiment.
Gold fell nearly 1 percent on Monday to its weakest in two weeks after centrist Macron led the first round of voting in the French presidential election, boosting stocks and triggering a sell-off of safe-haven bullion.
* Spot gold was down 0.9 percent to $1,273.15 per ounce by 0057 GMT. Bullion prices touched a low of $1,265.90 earlier in the session, the lowest since April 11.
* U.S. gold futures were down 1.1 percent at $1,274.70 an ounce.
* Centrist Emmanuel Macron took a big step towards the French presidency on Sunday by winning the first round of voting and qualifying for a May 7 runoff alongside far-right leader Marine Le Pen.
* The outcome lessens the risk of an anti-establishment shock on the scale of Britain’s vote to quit the European Union, with Macron widely tipped to win the final vote and keep France in the union.
* The euro scaled five-month highs against the dollar in early Asian trading on relief at the result, while U.S. stock index futures rose sharply on Sunday.
* North Korea said on Sunday it was ready to sink a U.S. aircraft carrier to demonstrate its military might, in the latest sign of rising tension as U.S. President Donald Trump prepared to call the leaders of China and Japan.
* Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose 0.52 percent to 858.69 tonnes on Friday.
* Barrick Gold Corp and its new Chinese partner presented a $500 million plan on Friday to make safety and environmental improvements to the Veladero gold mine in Argentina after a third cyanide spill in 18 months, a company executive said.
* Hedge funds and other money managers increased their net long position in COMEX gold for the fifth straight week to April 18, lifting it to a five-month high, U.S. Commodity Futures Trading Commission (CFTC) data showed Friday.
Gold prices dropped in early Asian trade on Monday after French exit polls showed centrist Emmanuel Macron and far-right leader Marine Le Pen leading the official vote count in the first round of French election.
Gold Down Over 1% After French VoteSpot gold, on Kitco.com, was trading 1.27% lower at $1,267.20 at the time of publication.
The fall in gold prices was due to thin Asian trade, Kitco’s global trading director Peter Hug explained.
“Gold dropped $20 on the news, likely because of thin Asian trade, but the $1,268 level needs to hold to prevent further liquidation, when Europe re-opens.” Hug said. “The key driver for gold will be the dollar and equity market reactions. It is expected that this result will be positive for US equities at the open.”
“The first round elections in France went according to script with centrist Emmanuel Macron and far-right candidate Marine Le Pen moving forward to the run-off election in two weeks. Traders had been long gold in the event that both Le Pen and communist candidate Jean-Luc Melenchon might be the victors,” he added.
With 83% of the votes counted, Macron was winning the first round with 23.32% of the votes and Le Pen was coming in second with 22.55%, according to France’s Interior Ministry. Macron and Le Pen will face each other in the second round on May 7.
Investors should keep an eye on the ECB and the euro as markets continue to digest election results, noted Hug.
“The French results may make it easier for ECB President Mario Draghi to reign in monetary easing next week, but it is likely Draghi will await the final outcome in two weeks. A victory for Le Pen would be devastating to the euro, but it is widely expected that Macron will be France’s next president,” he said.
Macron looks to beat Le Pen by 62%-38% in the second round of voting, according to the latest lightning Ipsos poll.
“We expect Macron to win the second round and to become the next French president, on the basis that the candidate closest to the center of the political spectrum has the best chance to win,” Citi said in a note. “Given Macron’s pro-EU platform, the outlook for Europe ought to be strengthened.”
In terms of a long-term view, gold prices have been rallying this year, with analysts noting that so far gold has been driven in part by increased demand in Europe as investors seek safe-haven assets due to the rise in popularity of euro-skeptic parties like Marine Le Pen’s Front National.
Gold prices have shown resilience following the French election results Sunday, which saw centrist Emmanuel Macron winning the first round and far-right leader Marine Le Pen coming in second.
Gold Consolidating As French Vote Goes As ExpectedSpot gold on Kitco.com erased some of the initial losses during the Asian session on Monday, trading at $1,275.30 at the time of publication, following a more than 1% drop.
“We haven’t been seeing a lot of people buying gold as safe haven against what happened in France on Sunday. The results were clearly an expected consensus by the markets,” Chris Weston, Melbourne-based chief market strategist at IG, told Kitco News in a telephone interview. “During the Asian market open, the metal dropped to $1,265. This kind of a reaction is a fairly tepid one, as everyone is still focused on falling inflation expectations.”
The initial sell-off was triggered by “previous safe-haven buyers exiting the gold market based on France’s first round results, and projected second round elections,” founder of Echobay Partners and commodity expert Vincent Lanci told Kitco News in an email.
“Those buyers were primarily concerned with right-wing candidate Le Pen, who is a nationalist and supports severing France’s euro currency ties,” Lanci explained. “What made matters more worrisome was the rise of a far-left candidate, Jean-Luc Melenchon, who is also anti-euro. If Melenchon and LePen were the final 2 candidates, there would be a referendum to leave the euro.”
Now, with Macron in the lead — a more moderate and pro-euro candidate — things are looking less risky, which Lanci pointed out is hurting both gold and the dollar.
“Traders are interpreting this as a sign that the EU has dodged another bullet, and chances of a Frexit referendum will diminish with Macron as President,” he noted. “In response, markets saw a sell-off in gold and the U.S. dollar at the same time. Since gold is priced in dollars, a weaker greenback is normally bullish for gold. But when gold and the dollar rise in tandem for safety purposes, they both retreat when fear subsides.”
Public opinion polls are projecting that Macron will win the second run-off against Le Pen on May 7. The latest polls revealed that Macron looks to beat Le Pen by 62%-38% in the second round.
“I didn’t expect to see a huge move in gold on Monday. In the end of the day polls estimate that Macron will win the second round fairly comfortably,” Weston said. “The polls in the first round were very accurate. And we have every reason to believe we can trust the pollsters, which are estimating about a 25 percentage points lead for Macron, as a lot of candidates are throwing their weight behind him.”
Macron received additional endorsements from defeated Socialist candidate Benoit Hamon, Socialist Prime Minister Bernard Cazeneuve and defeated right-wing candidate Francois Fillon.
Additional support put Macron at about 65% of the popular vote vs. Le Pen getting 35%, Lanci said.
Gold’s slight move down is actually viewed as a positive, with commodity experts saying that the yellow metal is holding up well considering the move lower in the U.S. dollar. “During Brexit, gold rallied 5% when the USD rallied 2%. Here we see the USD down 1.5% and Gold down 2% so far. And that is a win for gold,” Lanci explained.
The near-term outlook for gold remains positive. “Ultimately, you’ve seen gold come up from $1,194 low to the $1,295 high on April 17. It had a nice run. You are never going to get markets going up in a straight line. We are seeing some consolidation now. Once markets will break the $1,295 level, we can start talking about $1,300,” Weston said.