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Austria, Catalonia and Gold

After parliamentary election held on Sunday, Austria turned right. The conservative Austrian Peopleâ??s Party emerged as the largest party in the National Council with 31.4 percent of votes. The...

On Sunday, there was an election in Austria, while on Monday, the Catalan leader failed to clarify the independence call. What do these events mean for the gold market?

After parliamentary election held on Sunday, Austria turned right. The conservative Austrian People’s Party emerged as the largest party in the National Council with 31.4 percent of votes. The Freedom Party of Austria, which is a right-wing populist party, gained 27.4 percent, while the Social Democratic Party of Austria got 26.7 percent of the votes. The results imply that People’s Party leader, Sebastian Kurz, who is merely 31-year-old, will probably become the next chancellor. But the young age of Kurz is not the biggest concern for investors. The election shows that populism is still present in Europe. And it is likely that Kurz will build a coalition with the Freedom Party of Austria, implying that the populists would actually seat at the governing table. Thus, the results may trigger some safe-haven demand for gold. However, they should not significantly affect gold prices. The outcomes were generally in line with opinion polls and Austria is not as economically important as Germany or France. And the potential safe-haven demand may be counteracted by the currency channel, i.e. the weaker euro.

Indeed, the euro slipped on Monday morning, as the Catalan President, Carles Puigdemont, failed to clarify whether Catalonia declared independence or not. Madrid gave a Monday morning deadline for a response from Catalonia. Puigdemont wrote a letter, but without confirmation (or denial) that he had declared independence last week. Now, Madrid set the ultimate deadline for Thursday morning. Hence, the very near future may be quite turbulent for the euro, and, thus, gold. If the Catalan government chooses the hard line, Madrid may invoke Article 155 of the Spanish constitution, which allows the central government to dissolve the Catalan administration and order new elections. The Article states:

“1. If a Self-governing Community does not fulfill the obligations imposed upon it by the Constitution or other laws, or acts in a way that is seriously prejudicial to the general interest of Spain, the Government, after having lodged a complaint with the President of the Self-governing Community and failed to receive satisfaction therefore, may, following approval granted by the overall majority of the Senate, take all measures necessary to compel the Community to meet said obligations, or to protect the abovementioned general interest.

2. With a view to implementing the measures provided for in the foregoing paragraph, the Government may issue instructions to all the authorities of the Self-governing Communities.”

The take-home message is that Austria turned right after Sunday’s parliamentary election, while the crisis over Catalonia continues. The first event should not significantly affect the gold market, but the firm declaration of independence by the Catalan government and a hard response from Madrid could have a non-negligible impact on the yellow metal. However, the upcoming ECB meeting and expectations regarding its outcome will probably be the main driver for the EUR/USD exchange rate and gold in the near future. Stay tuned!

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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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