Gold’s roller-coaster ride likely to continue in May amid geopolitical tensions

Political uncertainties ahead likely to boost gold in May while the rally in euro and pound in April may be reversed this month

PUBLISHED : Sunday, 30 April, 2017, 4:48pm
UPDATED : Sunday, 30 April, 2017, 10:21pm

Gold has been on a roller-coaster ride in April while the euro and the British pound rose to their strongest levels in half a year amid the many geopolitical tensions during the month, a trend analysts believe is set to continue in May.

Gold stood at US$1,264.30 per ounce on Friday after losing 1.5 per cent on Monday. It shot up 2.6 per cent in the middle of April to a five-month high before ending the month 1 per cent stronger. The yellow metal has risen 10 per cent this year.

Political events have driven the roller-coaster ride, with the monthly high of US$1,290 per ounce coming on April 14, a day after the United States dropped its largest non-nuclear bomb ever used on Afghanistan. Tensions also persisted between North Korea and the US as President Donald Trump vowed to take unilateral action to stop Pyongyang’s nuclear programme unless China is able to constrain its neighbour.

Gold tumbles, euro jumps in wake of first round elections in France

The reversal that saw gold drop 1.5 per cent on Monday came after pro-Europe, independent centrist Emmanuel Macron took the lead in the first round of voting in the French presidential election the day before. Macron is leading in polls to win the presidency over far-right nationalist Marine Le Pen in the second-round election on May 7.

Expectations that Macron will win the run-off election led to a more stable political situation in France as he supports the country remaining in the European Union whereas Le Pen is in favour of leaving, an outcome that prompted investors to abandon the safe-haven investment of gold to bet on riskier assets such as stocks and the euro, which helped propel the French stock market to a nine-year high last week while the euro hit a 51/2-month high.

I believe gold prices will rise further to test the next technical level of US$1,302 per ounce
Jasper Lo, King International Financial Holdings

“However, investors need to be more cautious in May as one cannot rule out that Le Pen may win on May 7. In addition, Italy may have a presidential election as early as June while its banking crisis has not yet been solved,” said Jasper Lo Cho-yan, chief strategist at King International Financial Holdings.

Ongoing US and North Korea tensions and the prospects of further US military strikes in the Middle Eastmight well hurt the stock and currency markets and boost gold prices in May, he said.

“I believe gold prices will rise further to test the next technical level of US$1,302 per ounce,” Lo said.

Lo added that although the yuan had been stable in April at a range of 6.87 to 6.91 per US dollar, it might well be hard hit if the North Korean crisis deepened.

“North Korea is close to mainland China, so if anything happens there, it would affect the yuan,” he said.

Gordon Tsui, managing director of Hantec Pacific, believes the yuan will remain stable or even appreciate.

“Trump has no longer insisted on calling mainland China a manipulator of its currency. In addition, the economic situation in China has turned stable. I believe the yuan no longer has strong devaluation pressure ahead of it,” Tsui said.

Onshore yuan weakened against the dollar by 0.2 per cent in April while offshore yuan was down 0.42 per cent.

The euro traded at US$1.0895 on Friday, up 2.3 per cent for the month. At the current level, it is the strongest since November.

The pound hit a six-month high in mid-April and had increased 0.23 per cent to trade at US$1.2941 for the month after British Prime Minister Theresa May called a snap general election for June 8.

“Both the euro and the pound have risen sharply in April but traders believe they have gained too much. There are still a lot of uncertainties in the talks over Britain leaving the EU while we still don’t know who will win the French presidency yet. Both currencies are likely to fall in May,” Lo said.