The AK Party, founded by Erdogan, won an unexpectedly sweeping election victory. What does it mean for the global economy and the gold market?

Although investors are suspicious of Erdogan’s authoritarianism, they welcomed the results, as they end months of political uncertainty in Turkey. It is true that Erdogan is an Islamist at war with modern Turkey's secular roots, who wants to change the constitution to give himself – as president – more powers, but Turkey is a critical NATO member for Middle East stability. Western allies hope that the election results would allow Turkey to be more effective in stemming a flood of refugees from Middle East and to help the battle against the Islamic State, while investors expect that the vote would help restore stability and confidence in an $800 billion economy.

Turkey’s once flying economy (due to unusually low interest rates, and credit and construction booms) has recently slowed down significantly, as a symptom of broader emerging market crisis. The economy used to grow by around 5-10 percent annually, but now the economic growth is closer to 3.5 percent. The unemployment rate is above 10 percent, the inflation rate above 7 percent, social welfare is too generous, while the government has stalled on conducting any structural reforms. This is why Turkey, along with India, Brazil, Indonesia and South Africa are considered the most fragile five emerging markets and the most vulnerable to a possible drop in capital inflows prompted by the anticipated Fed rate hike. Indeed, Turkey was one of the first victims of the Fed’s tapering. And the Turkish lira has already lost 26.2 percent versus the U.S. dollar since December 2013.

To sum up, Erdogan’s party won the last parliamentary election in Turkey. This may be negative in the long run (due to a possible change in Erdogan’s authoritarian and Islamic inclinations), but it will restore stability in the 18th largest economy in the world in the short term. This is bad news for the gold market, since the shiny metal is a safe-haven.

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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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