Gold Extends Rally from 'China Drop' as France's Snap Election Spooks Bond Market
Tuesday, 6/11/2024 14:51
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.
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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.
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.
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