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Erdogan’s Victory and Gold

On Sunday, Recep Tayyip Erdogan, president of Turkey, narrowly won a referendum that will greatly expand his power. With 98 percent of ballots counted, the â??yesâ? vote stood at 51.4 percen...

Turkish President Erdogan won a crucial constitutional referendum. What does it mean for the gold market?

On Sunday, Recep Tayyip Erdogan, president of Turkey, narrowly won a referendum that will greatly expand his power. With 98 percent of ballots counted, the “yes” vote stood at 51.4 percent. The final results are expected to be announced in several days. The opposition said that the results were skewed, as ballots that had not been officially stamped were also accepted. European monitors stated that the referendum did not live up to the Council of Europe’s standards, but the Supreme Electoral Council has already confirmed the “yes” victory.

It means that the existing parliamentary system of government would be replaced with a presidential system. Hence, Erdogan will be both head of the government and head of state. He will be in power to appoint judges, dissolve the parliament, declare the state of emergency, and make some laws by decrees. And the changes could keep Erdogan in power until 2029. His opponents argue that too much power will be concentrated in the hands of one man, which threatens the Turkish democracy.

What will it mean for the gold market? Well, generally speaking, the impact is likely to be limited, as most of the investors focus on other factors than Turkish politics. Having said that, in the short run, the market would probably consider the outcome as positive and guaranteeing more stability. Indeed, the Turkish lira rallied 2 percent after the results, as the vote removed a major source of uncertainty. But the relief rally may be short-lived. Investors should not underestimate the long-term significance of that event. Turkey is an important NATO member and a key player in the Middle East. The outcome of the referendum may also transform the relationship between the country and the EU.

To sum up, the Turkish constitutional referendum is beyond us. With a narrow lead, people voted for changes shifting power from the prime minister to the president. In the short run, it eliminates an important source of uncertainty, which is bad for the gold market. However, there is a lot of long-term uncertainty about the future course of Erdogan’s Turkey, which could spur some safe-haven demand for gold in case of some turmoil. Anyway, the impact of the referendum on the markets, including the precious metals market, is only limited, so far. 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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