Last week, the British government published a white paper setting out its plan for leaving the European Union. What can we learn from this publication?
The Brexit is unfolding. Last week, the parliament voted to give Theresa May, the Prime Minister, the power to trigger Article 50 and begin the procedure to exit the EU. The next day, the government presented its plan on the departure process. It’s 75 pages long, but let’s try to analyze it.
As the saying goes, everything needs to change, so everything can stay the same. This describes the Brexit quite well. The government wants to leave, while keeping things basically the same. For example, the UK plans to leave the single market, but the new trade deal with the EU
“may take in elements of current Single Market arrangements in certain areas as it makes no sense to start again from scratch when the UK and the remaining Member States have adhered to the same rules for so many years.”
Well, it seems that the UK wants to have its cake and eat it too, striking a Schrödinger deal – the UK would be simultaneously both in and out the EU. Another example? The Britain wants to reduce the financial contribution to the EU budget. According to the white paper, the UK will not make vast contributions to the EU after the exit, but only “appropriate” ones. Success! When it comes to other issues, many unknowns remain. In particular, the government still does not yet how immigration will be controlled after the Brexit, or how to solve the problem of the border between Northern Ireland and the Republic of Ireland.
What does it all mean for the gold market? Well, the uncertainty about the Brexit will remain for a while, as the white paper does not specify what future economic model the government might envisage. It only says that the Britain does not “seek to adopt a model already enjoyed by other countries”. That uncertainty may be supportive for the price of gold, especially if negotiations turn out to be dramatic. However, it should be clear that the eventual departure will be a long and gradual process, which will soften its potential impact on the markets. There is also a possibility that the divorce will morph into only a separation. Anyway, we will update you about the Brexit and its potential consequences for the gold market – the next big development will be triggering Article 50, i.e. the formal notification of the intention to withdraw from the EU, which should occur by the end of March. 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.
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