Gold prices are now in a risk-off mode

China and India remain the major players in the physical gold markets.

Gold has subsided to $1,227 (Dh4,507) per ounce from a three-month high of $1,295 (Dh4,757), reflecting a risk-off mode. Investment markets calmed down after the results of the French elections. Apparently, the populist movements threatening the EU's unity aren't as powerful as they are in the UK. Which brings us to the next geopolitical threat: the UK elections on June 8, when gold is expected to make a comeback.
Politics aside, the first-quarter inflow into gold ETFs was solid but slightly down compared to last year. Investment into bullion and coins grew significantly. China and India remain the major players in the physical gold markets. Due to lower market volatility and an improved economic outlook, gold may suffer more short-term losses. VIX levels are below 10, another factor dragging on the precious metal.
Investors should be wary of being complacent that the gold price will stay deflated. It wouldn't do to underestimate the impact that the UK elections will have on the commodity. The UK elections are a benchmark for anti-EU sentiment. Fears over the EU breaking up are likely to resurface, temporarily overcoming US interest-rate dampeners on gold.
The markets are expecting another Federal Reserve rate hike in June, keeping the price in check for the moment. It will be interesting to see if the UK elections can outweigh rising US interest rates. It's a distinct likelihood. Sentiment - while unpredictable - is often stronger than logic. Even though Brexit fears subsided after Theresa May's decisive leadership, their influence on asset prices can't be ignored. Gold could spike on June 8 during the UK elections, and then dive the following week mid-June when the Fed meets.
The gold price may seesaw in the first two weeks of June, and then settle down again. Rising demand in Asia could keep it ticking over $1,200 in the short term. Still, the more rate hikes there are, the more downward pressure there is for the yellow metal.
Yet, for each anticipated rate hike dragging on gold, there is an opposing geopolitical threat pushing it up. In May, Iran's presidential elections were flagged as a possible influence on the gold price, with the old guard campaigning against the moderates.
Later in the year during autumn, China's Communist Party Congress is set to grab headlines, along with Germany's elections. What this means for investors is that they should not count out volatility for gold for the rest of the year. A number of trading techniques can be considered, like stop losses and carefully choosing entry and exit levels during the geopolitical storms. Risk management is as important as ever.
The writer is chief market strategist at FXTM. Views expressed are his own and do not reflect the newspaper's policy.