We have been focusing recently on political and economic development in America. Let’s now analyze the upcoming votes in Europe and their potential impact on the gold market.
The Trump’s victory (along with British referendum) is definitely the most important geopolitical outcome this year. However, there are several other interesting events in the near future that may affect the price of gold.
First of all, the Italian constitutional referendum is held on December 4, 2016. Italians will be asked whether they approve the reform that would reduce the size and powers of the Senate. The aim is to make the country, which has had 63 governments in the 70 years, a more governable country (now, both houses of parliament have the exact same powers and this is why there is often a political gridlock). Normally, constitutional referendum would not be so important, but the catch lies in the fact that young Prime Minister Matteo Renzi has promised to resign if the referendum fails. Investors are worried that such an outcome – the polls show that “No” vote will win – could make way for the Euroskeptic Five Star Movement to gain power. Hence, the referendum threatens the financial stability of Italy which is heavily indebted and mired in a banking crisis. Thus, the rejection of Renzi’s reform could increase the safe-haven demand for gold. However, more instability in Europe should strengthen the U.S. dollar, which would cap gold’s gains.
The Italian referendum is not the only geopolitical risk on the horizon. Next year, there are many parliamentary or presidential elections in Europe. The most important are perhaps French presidential elections in April/May and German parliamentary elections in September. If voters choose populists in France (we mean here National Front leader Marine Le Pen) and reject Angela Merkel as the German chancellor, the political foundations of the European Union and the Eurozone may shake. It could be rather positive for the gold market, however the price of gold often rises before such events as investors prepare for the worst scenario, and falls after they actually happen.
The bottom line is that the uncertainty about the outcome of Italian referendum and following elections in Europe should support the price of gold. However, the impact of geopolitical events on the price of gold is often exaggerated and this unlikely that they will reverse the current bearish trend, especially that European turmoil is always positive for the greenback which is negatively correlated with the shiny metal.
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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.
Thank you.
Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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