Are you ready for the biggest political upset of the year?
I believe that Marine Le Pen will win this weekend’s election and become the next French president.
I don’t make this forecast lightly.
Last week I focused on the first round of results and how to trade a Le Pen upset. That is, to buy gold and short stocks. The euro should also crash and burn, as the US dollar surges on the upset. You can find that analysis here. Wait! Don’t click away yet. I recommend reviewing it later…after you’ve read today’s Markets & Money.
Now, let’s talk about why Le Pen will win…
You won’t get this analysis from the mainstream press. The mainstream believes that Emmanuel Macron — the centralist candidate and former investment banker — will take the prize. The Harris Interactive poll, for example, places the chances of a Macron win at 61%, compared to 33% for Le Pen.
I’d take that poll with a grain of salt…
Political polls have been dead wrong multiple times over the past year. And if I’m right, and the polls are wrong again, gold could surge by US$100 per ounce on Monday morning. Remember, the majority aren’t expecting Le Pen to win. Her victory would send a massive shockwave through financial markets.
Understanding the bigger picture
At the end of the day, most politicians only care about getting re-elected. To make that happen, these ‘leaders’ make outrageous promises — year after year — and they rarely follow through.
French politicians have mastered that art. Their number one promise: Tax the rich and give more to the poor.
Unfortunately, their socialist ideals have backfired…badly.
François Hollande, the French President and socialist leader, attempted to tax the rich by 75% in 2012. The idea was shot down by the high court. Today, he’s so unpopular he didn’t bother running for a second term. 90% of the country disapproves of him. That’s an improvement from last year, though. His approval rating hit 6% at one stage!
Jean-Luc Melenchon, a French communist, went into the first round of votes with a plan to tax the rich by 100% a fortnight ago. That’s on income above €400,000 ($425,000).
Why €400,000? That’s 20 times higher than France’s average wage.
That would encourage more successful business owners to leave the country. No shock that he didn’t make it to the second round of votes…
With taxes out of control, French citizens are leaving the country in droves. 12,000 millionaires have left the socialistic country since 2015. Millionaires who could have started businesses and created jobs.
With the French youth unemployment rate standing at 23.7%, they can use every job they can get.
And French socialists wonder why they didn’t make it to this weekend’s election…
Indeed, for the first time since the Second World War, a socialist candidate didn’t make it to the final round of voting.
That’s a massive sign of disapproval!
To make matters worse, the refugee crisis has led to a national state of emergency. Over the past two years, Islamist extremists have taken the lives of more than 230 people in France. Extremist activity has been at an all-time high since January 2015. That’s when terrorists attacked the French satirical newspaper, Charlie Hebdo.
Why the majority won’t vote for Macron
The global elite don’t seem too worried. They are putting their weight behind Macron and believe he will win.
That’s a mistake.
As CNN reported overnight:
‘Dominic Thomas, professor of French and Francophone Studies at UCLA, believes the electorate faces a similar scenario to 2002 when Jean-Marie Le Pen, the founder of the National Front and Marine’s father, made it through to the second round.
‘On that occasion, the country banded together to vote for Jacques Chirac and ensure that the far-right candidate was crushed.
‘Thomas says a “downtrodden” electorate is now facing a vote in which it is opposing Le Pen, rather than throwing its support behind Macron.
‘“The problem is, yet again, like in 2002, the French electorate is being morally blackmailed, not so much to vote for a Macron they may really be fond of but against Le Pen,” he said.
‘“There’s a risk there that undermines the electoral process in terms of the final outcome.”
‘Macron has been endorsed by current President Francois Hollande, Republican candidate Francois Fillon and the Socialist Party’s Benoit Hamon, but he is not universally liked.
‘Often seen as the “elite,” he’s viewed as being part of the establishment and out of touch with the public.’
We talked about what happened in 2002 at length last week. Dominic Thomas summed up the story nicely. The political elite backed Jacques Chirac for the French presidency. Marine Le Pen’s father, Jean-Marie Le Pen, went up against him.
Jacques Chirac won in a landslide.
This time is different, however…
Macron has been endorsed by the political elite. And, despite popular opinion, I’d say that’s a negative. The majority has been let down by their faceless leaders for far too long. If they vote for Macron, they are bound to know what they will get — more of the same.
Macron is a pro-European politician who doesn’t want change. Aside from being a former investment banker (an elitist), he was previously the economic minister under Francois Hollande — the most disliked French President in recent history.
Despite the odds stacked against her, Marine Le Pen could easily win this election. And I believe she will.
So what does this all have to do with gold?
Gold — a hedge against political uncertainty — should skyrocket on that result.
What does this mean for gold?
Take a look at the monthly chart for gold:
Source: Tradingview.com; Resource Speculator
[Click to enlarge]
I showed Resource Speculator readers this chart last week and provided them with a detailed analysis on the broader outlook for gold. In short, the black downtrend channel shows that gold remains in a bear market. Despite the number of gold bugs telling you otherwise, that story hasn’t changed since 2011.
I believe that gold’s bear market will persist for longer than expected. For that reason, a Le Pen upset is purely a short-term trade idea.
This is how it works…
Pay attention to the pink horizontal lines. The lower pink line shows support down at US$1,119 per ounce. That’s the 2016 low, and it holds gold in a neutral position at the moment.
The upper pink horizontal line is key, and stands at US$1,374 per ounce. I believe that could get hit on a Le Pen victory.
That’s about a $120-per-ounce move to the upside.
Remember, following the Brexit vote, gold also moved US$100 per ounce in one day. A Le Pen victory would be a similarly unexpected upset. And I believe a similar surge for gold could happen on Monday morning.
And if Le Pen doesn’t win?
Well, that’s what people expect. It’s already priced into the gold market, so the yellow metal likely won’t fall too much.
I’ll be back with you next Tuesday to see how this all plays out.
Editor, Markets & Money
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