On Sunday, the first round of French legislative election was held. What does it mean for the gold market?
Although analysts focus now on the U.K., it’s also worth analyzing the impact of the French general election. Just one month after his presidential triumph, Macron enjoyed another incredible success. His newly formed political party (which did not even exist several months ago), La République En Marche (REM), took a huge step forward in Sunday’s first-round election. According to Ipsos, the REM is projected to win as many as three-quarters of the 577 seats in parliament.
It would be the largest majority in the history of the modern France and a huge blow to protectionism, as the Front National could only take a few seats. Socialists are likely to lose at least 250 of their 289 seats, while the Republicans could lose about 90-130 of their 199 seats. This landslide victory could strengthen the position of the French president, enabling him to win a battle with powerful labor unions and implement his political agenda. It’s not good news for the gold market, as the yellow metal shines during political uncertainty and crises.
However, Macron – if the predictions based on the first round are true – would be in a strong position to enact his pro-business agenda. It would give an impulse to the French sclerotic economy, strengthening the whole Eurozone. The appreciation of the euro against the U.S. dollar could be positive for the yellow metal.
The bottom line is that Macron’s party took a huge step forward in Sunday’s first-round election, blowing up the French political scene. It should ease concerns about European populism and Macron’s ability to implement his pro-growth agenda, which is bad for gold. However, Europe needs an economically strong France. If Macron’s reforms accelerate economic growth in France and the Eurozone, the common currency could strengthen against the greenback, which could be supportive for the yellow metal, which is often positively correlated to the EUR/USD exchange rate.
Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.