Gold prices will tend to be dominated by trends in risk appetite with strong demand for precious metals if the first round of voting in the French Presidential election intensifies instability fears.
Gold prices declined fractionally during the week, although trading ranges were narrow and selling interest remained limited. Prices found support just below the $1,280 per ounce level and consolidated just above $1,285 at Friday’s European close.
Risk conditions will be extremely important for gold trends in the week ahead with a particular focus on the French Presidential election. A very strong performance by National Front leader Le Pen would tend to support gold on fears over political instability within France and the wider Eurozone. The overall impact should be measured if Le Pen only narrowly reaches the second round and faces Macron or Fillon in the run-off.
A run-off between Le Pen and left-wing candidate Melenchon would be likely to trigger strong gold demand on fears over major tensions within the Eurozone and possible collapse of the Euro, although the impact would also probably be offset to some extent by a stronger dollar.
If neither Melenchon nor Le Pen secures a place in the second round there would be the potential for sharp gold losses given a likely improvement in risk conditions.
Wider trends in risk appetite will also be important, especially with on-going concerns surrounding the situation in North Korea. Any move to a nuclear test by the Pyongyang regime would be likely to have a serious impact in undermining risk appetite and supporting gold, especially as there would be a serious increase in tensions with the US Administration.
There are significant US economic data releases for the week ahead which will have some impact on the dollar and gold, although price moves are likely to be measured given that the Fed is in a short-term holding pattern.
Consumer confidence will be released on Tuesday with durable goods orders data on Thursday, although the biggest reaction is likely to surround the advance first-quarter GDP reading on Friday.
Gold prices will tend to gain significant support if there is a series of weaker than expected data releases.
Fiscal policy will also be a significant focus with reports that President Trump will announce planned reforms and tax cuts next week. A well-received package would tend to put some downward pressure on gold prices.
The most likely outcome is that the two major global central bank policy meetings will not have a major impact on gold prices, although complacency is inevitably a danger.
The Bank of Japan is likely to hold policy steady and remain committed to its yield-control policy with long-term yields targeted near zero. Gold would be likely to gain support if there is any hint of tightening given that USD/JPY would dip sharply lower, although this looks unlikely given Governor Kuroda’s recent comments.
The ECB is also likely to keep policy unchanged and resist any significant changes to forward guidance. There would be mixed implications for gold if there is any hawkish rhetoric from the central bank as dollar losses would be offset by an increase in bond yields.
Trends in oil and commodity markets will be watched closely, especially given the potential impact on bond markets. Further losses for commodities would tend to erode confidence in global reflation. Reduced expectations surrounding higher yields would tend to support gold prices.