The French Election And A Gold Price Forecast

Monday, April 24, 2017

gold prediction

It is increasingly clear that events beyond the United States borders will play an important role in defining the trends over the next few weeks for the precious metals and currency markets.

Of course, the international perspective is a critical component of the long-term thesis for precious metals throughout this macro cycle. During the 1970’s, when gold rose over 2,000% between President Nixon’s breaking of the Bretton Woods accord in 1971 and its subsequent peak in 1980, the bull market was mostly a US dollar-driven event. Dollar-holders turned in their greenbacks en masse, causing the price of gold to rise.

In contrast, the current backdrop for the metals has the potential to be even more powerful than in the 1970’s precisely because we now see a worldwide case for precious metals ownership.

For example, it would only take a tiny fraction of the world’s population to wake up to the worldwide nature of the “race to the bottom” in fiat currencies for the metals to be revalued at a multiple of current price levels. This is especially true in the silver market, where annual silver available for investment is only 200 million ounces after industrial fabrication usage, and total investable silver above ground is estimated at 2-3 billion ounces. If only 5% of the world’s 7.5 billion people each wanted to own a mere 10 ounces of silver, the entire above ground supply known to exist would vanish.   

The political backdrop is setting the stage.

We are not aligned with any single political party here – but as we witnessed last year with the dramatic price reversals higher on the Brexit vote and then lower following Trump’s victory – politics are increasingly having a direct impact on the precious metals and currency markets. Thus, we must devote focus to the international political scene at present.

French Election

Sunday saw French presidential candidates Emmanuel Macron of the centrist/socially-liberal EM party and Marine Le Pen of the right/nationalist FN party take the top two spots in the general election, at 23.7% and 21.7% of the vote, respectively. The two will face a run-off for a final election on May 7 to decide who will be the next president of France. 

While Macron is generally favored to win in the polls, the margin is not sufficient at this point to predict a clear victory. And as we saw last year with US surveys that were clearly faulty in the weeks prior to Trump’s victory, polling methodology is suspect regardless of the published odds.

A full evaluation of both French candidates is beyond the scope of this article, but as a general principle we can say that should Le Pen pull off a victory, it would represent the emergence of a distinct “anti-establishment” sentiment in France. We have seen similar sentiment across important corners of the globe over the past 12 months, including:

  • Brexit and the resignation of Prime Minister Cameron in the UK, June.
  • Trump’s victory, November.
  • The Italian constitutional referendum negation and subsequent resignation of Prime Minister Renzi, December.

With two major resignations of incumbents and the potential for two upset victories by right-leaning parties over just the past 12 months, we can say with clarity that all is not “status-quo” in the western democratic political world.

Surprise Votes And The Markets

As we saw on the initial gold-price spike and then $65 overnight reversal lower following Trump’s victory, it is nearly impossible to predict what the reaction of the market is going to be over the short-run following upset political events. On a surprise Le Pen victory, we would not be surprised to see a similar reaction, perhaps a spike toward $1,310 - $1,320 in gold followed by a reversal over the remainder of the week. However, it is not so much the immediate reaction amongst futures traders that we are primarily concerned with here: it is the larger political distrust that is distinctly brewing in the western world.

We live in a fascinating time. The circumstance – a growing anti-establishment sentiment within the backdrop of worldwide fiat currency – has never been witnessed before in modern history. During past generations, distrusting citizens could at least hold US dollars or Swiss francs, which were largely backed by gold.

World citizens no longer have the option hold a currency backed by gold. There is no safe-haven amongst world paper.

We continue to believe that the political tremors being felt around the world are paving the way for the bull market in precious metals that is developing. Still, most citizens are content to vote at the ballot box. However, either sooner or later, a critical mass will begin to connect the dots, and to realize that no matter which candidate takes office for a few years’ time, a fundamental flaw exists in the democratic system: private central banks control the bulk of the government’s funding – and without a change to the central banking institution at its core, no democratically-elected politician will ever be able to impact lasting change for the well-being of the population at large.

When will constituents begin to vote with their pocketbooks and not just at the ballot box?

This remains the critical question for the development of the precious metals thesis. The fundamentals are in place… but we can never make the assumption that individuals will act based on fundamentals alone within any reasonable timeframe.

The French election in two weeks has the potential to be the fourth in a series of major anti-establishment votes seen throughout Europe and the United States over the last 12 months. The sentiment of change is clearly in the air.

Let us now turn to the charts to see what the market actually shows is happening right here and right now.

Gold Price Forecast

From a US dollar perspective, gold remains perched immediately below the long-term downtrend we have been monitoring since 2011, which comes in just above $1,290. The significance of overcoming this trendline is paramount to the establishment of a new primary bull market.

Zooming in the above chart, our short-term outlook remains: if gold can exceed its long-term downtrend on a weekly closing basis, we look for this to be a major breakout signal (green arrows – Scenario A). The initial advance will be met by heavy resistance between $1,310 - $1,337, labeled Trump Reversal Resistance, as this is the zone that saw the highest daily volume in gold trading history on the price reversal last November. We would then look for a retest of the broken trendline by mid-July, with a major impulsive advance into the low $1,500’s to begin by late Q3.

Conversely, if political events and/or dollar weakness are insufficient to cause gold to break its long-term downtrend within the next two weeks, we will look for a retreat back into the converging pennant defined by the falling long-term (magenta) 2011 – 2017 downtrend and the rising (blue) support from the 2015 bottom (orange arrows – Scenario B).

Support within this convergence should be expected to emerge anywhere between $1,265 on the high end and the rising trendline (blue) on the low end, which currently comes in at $1,155.  A resolution either higher or lower from this pennant must then finally occur by Q3 – Q4.

It is never easy to stay involved in the early stages of a suspected new bull market, and gold is proving this to us. As President Theodore Roosevelt once said: “Nothing in the world is worth having or worth doing unless it means effort, pain, difficulty… I have never in my life envied a human being who led an easy life. I have envied a great many people who led difficult lives and led them well.
In other words: nothing good comes easy.



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Christopher Aaron

Christopher Aaron began his career as an intelligence analyst for the CIA and Department of Defense. He served two tours to Afghanistan and Iraq between 2006 - 2009, conducting pattern-of-life mapping for military leaders.

Mapping shares similarities with technical analysis of the financial markets because both involve the interpretation of repeating patterns found in human nature. He is the founder of iGold Advisor, providing research on the precious metals, and iGlobal Analytics, featuring technical analysis of the global capital markets.

Christopher speaks regularly on the cyclical patterns found within the financial markets and on international policy. He has been featured in the New York Times and NPR news amongst other publications.