Why Gold Is Slumping After The French Election's First Round Shock

For the past several months, gold has been soaring.
04/27/2017 03:58 pm ET Updated Apr 30, 2017
MARTIN BUREAU via Getty Images

In times of political uncertainty, gold has a tendency to rise to the occasion. This economic safe haven, backed by multiple national banks across the globe, tends to provide a stable form to keep investments in when an investor is unsure about the economic and political future of a particular nation or currency. When you aren’t sure what the dollar, yen or euro will do, you keep your money in gold instead.

And for the past several months, gold has been soaring. It reached a five-month high of $1,294 in April. This would be a good time to buy vintage jewelry clasps at A Grain of Sand. Political uncertainty defines much of the current geopolitical climate, as a result of a number of issues ranging from the civil war in Syria, to Russian aggression in the Middle East, to Brexit, to Trump’s uncertain trade deals with China.

The rise of far-right fascism in the west, as well as the counter-response of far left activists seeking to quell the right-wing tide, has resulted in what feels like a fractured and divided world. So, gold.

The most recent results of the French election, however, have had a noticeable impact on the cost of gold, bringing it down nearly 1 percent since the Sunday elections that showed center candidate Emmanuel Macron beating far-right candidate Marine Le Pen in the first round of elections, reassuring many that the controversial conservative candidate would not win the second round.

The price of gold may behave tumultuously up to the election depending on how news and populations feel regarding Le Pen’s chances of winning.

Over in the U.S., concerns that the government would shut down over negotiation issues have also been mostly alleviated, further reducing geopolitical anxieties to help the cost of gold drop.

The next French election, May 7, is expected to turn out voters looking to strategically keep Le Pen, who polls very negatively outside of her base of supporters, out of office. The price of gold may behave tumultuously up to the election depending on how news and populations feel regarding Le Pen’s chances of winning. However, public polls indicate that Macron is expected to win the office, which would help stabilize gold and bring the price back down further.

Other news that can help stabilize the rise of gold: North Korea appears to be backing down in the face of a number of enemies threatening sanctions and actions against the country. Whether this is a temporary political reprieve or a genuine stand-down remains to be seen.

The threat of an American-Russian war has in recent weeks begun to resemble the early years of the Cold War, with discussion about triggering a nuclear war and with presidents of the two nations openly clashing on how to proceed with Syria defining much of the political relationship. This situation is volatile, which means it too has the potential to affect how gold will rise and fall, and indeed may be the next big political event that investors must keep their eyes on to determine where to keep their money.

The tide in recent days looks to have turned towards the less alarming for France and North Korea. However, the nature of today’s tumultuous political climate means situations can change abruptly and without warning. The price of gold is going to be exceptionally difficult to anticipate in the coming months, but one can tentatively assume that the precious metal has peaked for now and will be dropping, at least slightly, in the coming weeks.

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