The UK Prime Minister Theresa May is to trigger Article 50 by the end of March 2017. What does it imply for the gold market?
This week, Theresa May said that she will begin the formal Brexit negotiation process by the end of March 2017: “We will invoke Article 50 no later than the end of March next year”. It means that the UK would exit from the EU by the end of March 2019, but the complex negotiations are likely to be extended. This is because a lot of unknowns remain (especially how to solve the issue of immigration). Moreover, the timing of starting Brexit talks is rather unfortunate as it would be before both French and German elections.
Anyway, May’s worlds are a very important declaration which ends speculation about the UK government’s timetable. The eased uncertainty about the Brexit process could also contribute to the plunge in gold prices, as well as the depreciation of the British pound against the U.S. dollar. The British Prime Minister also promised a “Great Repeal Bill” in the next Queen’s Speech, to remove the European Communities Act 1972 and transform all existing EU law into domestic law. She said: “That means that the United Kingdom will be an independent, sovereign nation.” Yeah, because, you know, the UK has been so far a continental colony.
The key takeaway is that Theresa May declared that she wanted to trigger Article 50, which starts the exit procedure from the EU, by the end of March 2016. What is important here is that she adopted rather a hard line, as she would prefer an option where Britain would leave the single market and control immigration. May said: “we are not leaving the European Union only to give up control of immigration again”. As her remarks were interpreted as call for hard Brexit, the British pound fell against the U.S. dollar. The appreciation of the greenback combined with decreased uncertainty could have been the direct reason for gold’s decline, despite the fact that hard version of Brexit should be rather better for gold. Anyway, the Brexit would be a long process and we will probably not see any important consequences of it for the gold market until March 2016. Only the invocation of Article 50 and the EU’s reply may bring some worries and increase an uncertainty and safe-haven demand for gold. However, what pushes investors towards gold as safe haven are sudden and surprising changes, not gradual and predictable processes.
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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.
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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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