The Impact of Brexit on European Gold Markets
On the 23rd of June 2016, the British people held a national referendum to exit the European Union.
This decision would go on to create a financial shock throughout much of Europe and caused the value of the pound to plunge. The event—which came to be known as the Brexit vote—wasn’t as bad as most feared and the markets soon recovered.
The event had an interesting effect on gold, which soared up in price after the vote results were announced. Three years onwards and Britain has yet to arrive at a conclusive decision whether or not to leave the EU.
In this blog, we’ll discuss how the future of Brexit will affect European gold markets.
Gold and Brexit
UK’s exit from the EU is set to be complex, costly, and long. It would definitely generate uncertainty, risk-aversion, and negatively impact the global economy—factors conducive to the rise of gold prices.
Risk factors associated with Brexit are a replay of the debt and banking crisis within the Eurozone.
Other European countries will also be incentivized to break apart from the EU and the growth of globalization will slow down. As is the case with almost all economic crises, gold remains unaffected and becomes a valued commodity.
Let’s take a look at how the potential outcomes of Brexit will affect gold markets.
Unless the terms of the withdrawal agreement are not met by the 31st of January, 2020, a no-deal could be a real possibility. However, with the conservative party showing all the signs of winning by a majority vote, no deal seems to be on the table.
Failure to reach an agreement would generate the most disturbance and uncertainty for local markets.
UK trade would operate under World Trade Organization rules and would find itself in a vulnerable and isolated trade position.
In such a scenario, businesses are looking at a gloomy future that involves lower profit margins owing to work visa restrictions, tariffs, increased regulations, and more.
Simply put, a no-deal would very likely cause a surge in gold prices as investors scramble to find safe investments.
A Hard Brexit is where the UK completely leaves the EU; freedom of movement and access to single markets will disappear.
Naturally, negotiating a hard Brexit with the EU is pretty difficult and would also lead to a lot of uncertainty. Investors will most likely sell local shares and switch to gold as safe investments.
The UK would go through a tough economic phase as it would struggle to create new trade deals with the EU and other countries. Although the price of gold would increase in the case of a hard Brexit, it wouldn’t be the same as a no-deal scenario.
This deal involves the UK leaving the EU but remaining a part of its single market. This will ensure the continuity of the free movement of people and goods with other EU members. A soft Brexit is favored by some members of the Conservative party as well as the opposition.
Should Jeremy Corbyn and the Labour Party claim victory, a soft Brexit will most likely follow. This will be done to help protect the UK economy as well as local jobs.
Regardless of the outcome, gold is likely to experience increased demand and prices. It would be a wise decision to buy gold bullions online and shift your investments to gold.