This week, pro-independence parties won the regional election in Catalonia. What does it imply for Europe and the gold market?
Parties in favor of Catalonia’s independence from Spain won an absolute majority in regional elections. The nationalist coalition Junts pel Sí (Together for Yes) won 62 seats, while the smaller far-left separatist CUP party – 10 seats. This means that the alliance of both parties could give secessionists an absolute majority in the region’s 135-seat parliament.
What does the election mean for the Spain and the European Union? Well, the separatists say that the victory gives them a clear mandate to form an independent Catalan state, but the truth is that they took down only 48 percent of the vote. Although nationalist leaders have promised to declare independence within 18 months if they win the vote, there is a long way to go – separatists have to get first a legally-recognized referendum on that, as in Scotland last year. However, the results matter, because they could have a bearing on the December national election.
The victory of separatists increases the political uncertainty in Europe (Spain is the sixth largest economy in the European Union and the fourth largest in the Eurozone) and should be supportive for the price of gold. In an extreme scenario, Catalonia gains independence and loses EU membership (and to regain it, Catalonia would have to be recognized as a “state” by all EU states, including Spain). Spain would lose around 20 percent of its GDP, so the public debt would move from just above 100 percent to 125 percent of GDP (without an agreement to share the stock of debt with Catalonia). Catalonia is also a net contributor to Spain’s tax system and might not pay back its liabilities to the central government. However, this scenario seems to be unlikely, as the uncertainty over the exit from the European Union would deter voters from opting for a “yes” (as in Scotland). And as we have seen in Greece, capital controls cannot be excluded to put pressure on rebellious politicians.
The key takeaway is that in the wake of the latest developments in Greece, political events in Spain have the potential to further destabilize the European Union. Given the fact that there is a general election in December, the political uncertainty in Spain may be a supportive factor in the gold market, especially that Spain’s economy is much larger than the Greek one. However, this impact should not be substantial, as there is still a long way to go for separatists, and the U.S. factors should still dominate the gold market.
If you enjoyed the above analysis, we invite you to check out our other services. We focus on the fundamental analysis in our monthly Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals.
Thank you.
Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
Gold News Monitor
Gold Trading Alerts
Gold Market Overview
