On Sunday evening, I checked the results of the French presidential election.
The numbers read as follows: Emmanuel Macron, 23.8% … Marine Le Pen, 21.5% … François Fillon, 20% … Jean-Luc Mélenchon, 19.6%.
I stopped reading there, as these were the only four candidates who had any realistic chance of capturing one of the top two spots necessary to compete in the second round of French elections, which will be held May 7.
You see, the way the French elections work is that, if one candidate gets more than 50% of the vote in round one, that candidate becomes president. If no candidate captures more than 50%, then the top two vote-getters stage a run-off in round two.
That means that En Marche, or "centrist," candidate Macron will face off against National Front, or "far right," candidate Le Pen to see who will capture the top spot in the French government.
Keep in mind here that the terms "centrist" and "far right" have different meanings in European politics than they do for American politics.
In France, "far right" means policies that favor an exit from the European Union, sometimes referred to as a "Frexit." It also means stricter immigration policies and stricter social policies.
Well, Frexit is not something Wall Street wants.
And, you could tell that by the reaction in stocks today. The market surged some 216 Dow points higher, or 1%.
You see, even though Macron and Le Pen captured about the same percentage of the vote, in a run-off election the polls suggest Macron will easily defeat Le Pen.
In fact, the latest polling suggests a 2-to-1 margin of victory for Macron. He wants to stay in the EU … wants to increase government spending in France … and wants more European Union monetary stimulus.
In other words, Macron represents the status quo while Le Pen represents big change. change that could mean big economic upheaval for the EU and for global equity markets.
As we all know, the one thing markets hate most is uncertainty caused by upheaval and change. So, the fact that Macron is in the driver’s seat to the presidency is what Wall Street wanted … and hence the big relief rally in domestic markets.
While U.S. markets got a boost today, the likely Macron victory also was heavily reflected in the European equity markets.
For example, two ETFs pegged to the fate of Europe — the WisdomTree Europe Hedged Equity ETF (HEDJ) and the iShares MSCI Europe Financials (EUFN) — both were up big in Monday trade.
HEDJ ran up about 3.2% in Monday trade while EUFN spiked some 5.8%.
|Today’s trading action puts HEDJ up 12.5% and EUFN up 12% for the year so far.|
That tells you right there that Wall Street is smiling on French voters, and on the likelihood of no "Frexit."
Finally, while the polls suggest Macron will win easily against Le Pen on May 7, I am approaching that vote with a bit of rational caution.
Remember the polls in Britain suggested that Brexit would be voted down … and look what happened.
Also remember that the polls here at home suggested that Hillary Clinton would be president … and look what happened.
Until the actual vote is in, I am going to remain cautious about European stocks.
But should you be cautious about gold, especially after today’s 0.9% slide as investors switched over to risk-on mode? Not according to our small-cap mining expert, Sean Brodrick. In fact, he’s pretty happy to see this kind of action.
With gold in an uptrend, we could be looking at a gold-buying bonanza right now. Tell us about it, Sean …
Mining for Money
The Most Important Pullback in Gold You Will Ever Consider Buying
By Sean Brodrick
Gold sold off hard on the news that a moderate won the first round of elections in France. Good! Now, if it will only sell off deeper, we could get down to the target I told you about two weeks ago in my article, "This Gold Party Ain’t Started Yet."
Here’s a chart of the SPDR Gold Trust (GLD), which tracks gold closely. I would really like to buy if gold pulls back to test the uptrend I’ve marked on the chart.
Let me explain what you’re seeing here.
Gold broke out a couple weeks ago. This turned former overhead resistance into what I’ve marked "1st support." This lines up with the 200-day moving average. And it should be strong support for gold.
If we’re very lucky, gold will break that support and go down to test its uptrend. Why would that be lucky? Because THAT would be a heck of a buying opportunity.
The market won’t really turn bullish on gold again until it pushes up through that green line I put on the chart. Good! That means we can buy the metal on the cheap while others dither and sit on their hands.
Really, it’s no surprise that gold pulled back. The market got too bullish, too soon. Sentiment in Bloomberg’s gold survey hit its highest level since last August.
With so much bullishness, the market was ripe for disappointment.
What happens now? This morning, we already saw buyers come in. So we may not get the pullback I am looking for.
But if, I say "IF" we get a pullback to that uptrend? Then you should buy gold and miners with both hands. Because that will likely mark the beginning of the next Mega Bull trend.
I’ve told you that such a massive rally could take us to my intermediate-term target of $1,540 and higher. Heck, it might not stop until gold hits $2,700!
I’ve told you about the fundamental forces lining up behind gold and miners. Those include declining gold reserves, a lack of spending on new exploration, a top in the U.S. dollar, declining gold grades, peak gold, rising inflation, the ballooning Asian middle class, the cyclical nature of gold. And more.
But I also said there was one ingredient missing: Investor buying.
Well, guess what? That’s changing. And in a big way, too.
I already told you that investors poured $487 million into SPDR Gold Shares on Wednesday.
Now, it turns out that hedge funds are starting to pile on, too. Bloomberg reports that hedge funds increased their wagers on a gold rally to the highest level since November.
Interestingly, gold prices went down last November, too. But gold found a bottom in December, and then it blasted off.
The move in gold from the December low to the recent high was 14.5%. That’s a huge move in futures. And it kicked a lot of mining stocks into overdrive.
Yes, hedge funds were early. But not that early. They could see the big surge coming.
So is this pullback in gold over? We can’t tell yet. But if we’re lucky, gold will zig-zag its way lower.
Again, I would love to see gold keep pulling back. Let it test that uptrend. That would be a great launching point. It could serve as a platform to catapult gold and miners higher.
The fundamentals lining up for precious metals are huge and fierce. In the months ahead, fortunes could be made on the right investments.
And that’s why this could be the most important gold pullback you will ever consider buying.
All the best,
Good luck and happy investing,
Uncommon Wisdom Daily
P.S. Last week, we looked at how the "smart money" in the U.S. has been pouring into European stocks. And today’s 4.1% gain in France’s CAC 40 Index was likely driven in part by U.S. buyers. Britain was a beneficiary, too, with the UK’s FTSE 100 gaining 2.1%. In tomorrow morning’s edition, Nilus Mattive will tell you more about why you need to watch the pound sterling, and the best way to do just that. Keep an eye on your inbox!