Gold News

Gold Extends Rally from 'China Drop' as France's Snap Election Spooks Bond Market

The PRICE of GOLD rallied further on Tuesday, extending its bounce from Friday's steep plunge as global stock markets fell with bond prices, base metals and the Euro currency amid continued shock at French President Emmanuel Macron's decision to call a snap election.
Following the weekend's big European Parliament gains for Marine Le Pen's National Rally party, "The risk that France's [domestic] parliament may be led by the far-right may focus attention on France’s dismal fiscal situation, which could shake up the Euro," Bloomberg quotes Jane Foley, head of FX strategy at Dutch-owned multinational Rabobank.
With the US Fed expected to leave Dollar interest rates unchanged tomorrow after the European Central Bank began cutting rates last week, "We see French politics as another reason to expect that the Euro is set to remain lower for longer" she adds.
Gold priced in the single currency rose to €2158 per Troy ounce, recovering half of Friday's 3.4% plunge, made after the People's Bank of China said it didn't buy any gold bullion for the first time in 18 months in May.
Watch or listen to our Gold Market Reports on YouTube.
US Dollar gold meantime rallied to $2315, reversing a third of its pre-weekend drop. But the gold price in UK Pounds per ounce was less buoyant at £1816, regaining only 1.0% from Friday's 2-month low.
Chart of 10-year French OAT yields vs. German Bund yields. Source: Trading Economics
Many major Western bond prices meantime fell further, driving up borrowing costs for most government's across the 20-nation Euro monetary union after the weekend's big gains for 'far right' parties in the European Parliament elections.
But while Germany's 10-year Bund yield slipped away from 2-week highs of 2.67% per annum, the rate France's 10-year OATS jumped 0.1 percentage points to the highest since November at 3.27%.
That pushed the spread between 10-year OATS and Bunds up above 0.6 percentage points, still only half the spread of Italian BTP yields over German Bund yields – now fallen to the lowest in 2.5 years, signaling improved market confidence in Rome's long-term debt – but the widest since January following Macron's response to his European Parliamentary defeat.
Le Pen's populist anti-immigration party National Rally won almost 1/3rd of the votes in France, twice the share of the Besoin d'Europe alliance which includes Macron's Renaissance.
Back in the gold market, the return of Chinese traders from the long weekend's Dragon Boat holidays saw gold prices in the precious metal's largest mining, importing, central-bank buying and consumer market hit 2-month lows in Yuan terms.
That cut the Shanghai gold premium to London quotes – effectively the incentive for new bullion imports into China – to the lowest in 2 weeks at $26 per Troy ounce.
Gold trading volumes at the Shanghai Futures Exchange meantime dropped by over 1/3rd from Friday's multi-month high, made on the news of Beijing pausing its 18-month accumulation program for its official reserves.
Given the strength of National Rally's recent gains, France's snap election could have "the most serious consequences" in modern French history warns Finance Minister Bruno Le Maire.
Coinciding with the UK's General Election at the start of July, the timing makes "Macron's decision...that of a petulant spoilt child," says one political analyst and academic.
Unlike gold, silver meantime gave back Monday's rally today, trading back below $30 per Troy ounce as base-metal copper dropped to 1-month lows, down more than 15% from mid-May's new all-time highs.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn



Market Fundamentals