What Macron’s Electoral Victory Means For Precious Metal Prices
Emmanuel Macron will formally assume office as the new President of France this weekend, after decisively winning the second round of the French presidential election. While the election of France’s youngest President is a remarkable political event, the recent election also has significant consequences for the prices of commodities such as gold and silver. The following charts illustrate the decline in gold and silver prices from around the time of the first round of the French presidential election, held on April 23.
Gold Prices, Source: Kitco
Silver Prices, Source: Kitco
The decline in prices, which began in the latter part of April, broke a month-long rally in prices following the Federal Reserve’s March rate hike. This decline in prices was largely due to changes in investors’ risk perceptions once Macron’s victory in the elections looked likely.
Precious metals are largely considered safe-haven assets from an investment point of view, with investments in these assets often made to counter macroeconomic and geopolitical uncertainty. In addition, since precious metals only yield capital gains in terms of returns (with no coupon/interest component of return), rising interest rates tend to lower the investment demand for these commodities. Precious metal prices soared in the third quarter of last year in the wake of the unexpected outcome of the UK’s June 23 EU referendum, as a result of a sharp increase in the safe-haven investment demand. Gold prices peaked at $1,366 per ounce in July 2016 as the investment demand for gold rose 44% year-over-year in Q3 2016. [1] Prices declined from the levels of Q3 2016 over the subsequent two quarters, though, as the Fed hiked benchmark interest rates in December and March. However, prices rose again from the middle of March in the weeks leading up to the first round of the French presidential election as a rising tide of anti-EU sentiment in France raised the prospect of Marine Le Pen realistically challenging for the presidency. Le Pen, the leader of the National Front party, favored a withdrawal of France from the European Union, with a potential victory for her expected to translate into a repeat of the political turmoil seen after last year’s Brexit referendum. However, pro-EU candidate Emmanuel Macron received the greatest number of votes in the first round on April 23, with Le Pen finishing in second place. Though the top two candidates faced off again in the second round on May 7, Macron’s victory was widely expected.
Macron’s political gains in the first round and eventual victory in the elections calmed some investor fears, translating into a decline in precious metal prices. Moreover, the German federal election, to be held later in the year, is unlikely to witness a surprise outcome with Chancellor Merkel widely expected to be re-elected. Considering the relatively stable political climate in Europe, precious metal prices are expected to remain subdued with the Fed expected to hike interest rates by an additional 50 basis points over the rest of the year amid robust jobs growth and steady economic growth in the U.S. [2] The following chart reflects our expectations for gold prices going forward. You can see how changes in prices impact Newmont Mining’s value by modifying the forecasts.
While we do expect the upside for gold and silver prices to remain subdued in the near term, adverse developments pertaining to geopolitical issues such as the conflict in the Middle East or the North Korean nuclear missile program could drive up prices. Barring any such developments, precious metal prices are unlikely to rise significantly from current levels over the rest of the year.
Have more questions about Newmont Mining? See the links below.
- Newmont Mining’s Q4 2016 Earnings Review: Higher Gold Prices And Shipments Drive Earnings Improvement
- Why Gold Jewelry Demand Will Recover This Year
Notes:
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Notes:- Q3 2016 Gold Demand Trends, World Gold Council [↩]
- The Fed’s New Dot Plot, Bloomberg [↩]