Gold pressured further as market risk perceptions remain subdued

Despite a generally lagging US dollar, the price of gold continued to drop on the first day of May after having fallen for the past two weeks since mid-April’s year-to-date peak just below the $1300 handle. This sustained fall for gold can be attributed in part to rallying equity markets and low perceptions of market risk, which have significantly decreased the demand for safe-haven assets like gold and the Japanese yen.

A highly-positive earnings season overall for US equities thus far has helped push major US stock indexes back up near record highs, with the tech-heavy Nasdaq index leading the way as it has hit progressively higher all-time highs multiple times within the past week.

Meanwhile, perceptions of geopolitical risk have diminished as President Trump’s 100-day milestone came and went over the past weekend, prompting Trump to aggressively tout his accomplishments in the face of vehement disagreement from opposing voices.

In Europe, the upcoming final round of the French elections, which was previously considered a potentially high-risk event, has continued to fade in prominence as the “safe” candidate in centrist Emmanuel Macron continues to poll around 20 points ahead of his far-right, anti-EU opponent, Marine Le Pen. Latest polls have seen Le Pen narrow the gap slightly, but Macron still leads at around 60% to Le Pen’s 40%.

The expected difficulties surrounding the UK’s Brexit negotiations with the European Union continue to pose a risk, but UK Prime Minister Theresa May’s recent calling for a snap election in June to strengthen her mandate and negotiating position has helped alleviate some concerns over that risk. This is particularly the case since May’s Conservative Party remains far ahead of the Labour Party in public polling.

Potentially the most pressing geopolitical risk at the moment is the stand-off between the US and North Korea over the latter's nuclear threats and provocations. On Monday, however, in a possible attempt to ease tensions, President Trump expressed his willingness to meet with North Korea’s reclusive leader, Kim Jong Un. Referring to Kim in a media interview, Trump said, "if it would be appropriate for me to meet with him, I would absolutely, I would be honored to do it." The fact that a US president used the word “honored” in referring to a meeting with Kim could indeed help to ameliorate relations with the North Korean leader.

Amid these potentially shrinking global risk factors, gold has lately had little reason to extend its uptrend from the beginning of the year. The fall from near the $1300 price level since mid-April has now brought the price of gold back down to almost a three-week low, approaching the key $1250 support level and 50-day moving average once again. Any strong breakdown below $1250, particularly if the US dollar rises amid a data-heavy week in the US or if markets continue to shed risk factors, downside momentum for the precious metal could be poised to extend, potentially breaking the uptrend since the beginning of the year. Any such breakdown could then beginning targeting the next major support objective around the key $1200 level.


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