Gold’s roller coaster ride likely to continue in May amid geopolitical tensions
Singapore (April 30) Gold has been on a roller coaster ride in April while the euro and sterling 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 reach a five-month high and eventually ended the month up 1 per cent and 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 US dropped its largest non-nuclear bomb ever used on Afghanistan. In addition, tensions 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 last 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 France remaining in the EU whereas Le Pen is in favour of leaving, an outcome which 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 five and a half month high.
SSI believe gold prices will rise further to test the next technical level of US$1,302 per ounce
Jasper Lo Cho-yan, 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 Eastmay 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 has been stable in April at a range between 6.87 yuan to 6.91 per US dollar, it may well be hard hit if the North Korean crisis deepens.
“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 continue to be stable or even appreciated.
“US President 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 US dollar by 0.2 per cent in April while offshore yuan was down 0.42 per cent during the month.
The euro traded at US$1.0895 on Friday, up 2.3 per cent for the month while the current level is the highest since November.
Pound sterling hit a six month high in mid April and had increased 0.23 per cent to trade at US$1.2941 per pound for the month after British Prime Minister Theresa May called a snap general election for June 8.
“Both the euro and sterling have risen sharply in April but traders believe they have risen 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 go down in May,” Lo said.
Source: SouthChiniaMorningPost
