French Relief Triggers Sharp Losses in Gold Prices, North Korea Still in Focus

(April 25, 2017 - by Tim Clayton)

Macron’s victory in the French Presidential election first round was crucial in supporting risk appetite and undermining gold prices, although markets were still wary of the North Korean situation.

Gold prices edged higher during the New York session on Friday with underlying caution ahead of the French Presidential election vote triggering a move to just above $1,285 per ounce.

The latest COT data recorded a further significant increase in long, non-commercial positions on the week. The number of contracts increased to above 195,000 which was the fifth successive weekly increase and the highest level since the election of US President Trump in November.

The extended positioning will increase the risk of liquidation if there is a sustained dip in spot prices.

In the French Presidential election, exit polls indicated that centrist Macron would win the first round vote with close to 24% of the vote with National Front leader Le Pen in second place.

There was a sharp improvement in risk appetite following the release of exit polls with gains for the Euro and equity futures while there was a big dip in demand for defensive assets with notable weakness in the yen and Swiss franc. Given the positive mood surrounding risk, demand for gold also fell sharply at the open with a dip in prices to test support below $1,270 as results confirmed the exit poll projections.

The decline in US Treasuries also helped underpin gold with 10-year yields back above the 2.30% level.

The dollar was unable to hold its best levels against the yen which curbed further potential selling pressure on gold.

As well as the French Presidential election, there were also expectations that President Trump would announce proposed tax changes this week which also put some upward pressure on US yields.

There was still an important element of caution surrounding geo-political issues with a notable focus on the situation in North Korea. There were further concerns that the Pyongyang regime could launch a missile test on the April 25th anniversary of founding the military.

Any move to another nuclear test would risk a sharp spike in risk aversion and strong demand for gold with overall market volatility liable to increase.

Risk conditions will remain the dominant factor in the short term with no major economic data releases due.