The parliamentary election in the Netherlands is behind us. What does the outcome imply for the gold market?
Wednesday was a turbulent day. The U.S. central bank hiked its interest rates for the third time during the current tightening cycle, while a general election was held today in the Netherlands. Although usually nobody cares about the Dutch politics, this time was different. This is because the anti-EU Geert Wilders’ Freedom Party has gained in popularity recently, raising concerns over the rise of populism in the West. The elections were believed to be a litmus test of the sentiment in Europe after the Brexit (by the way, yesterday the Queen gave Royal Assent to the Brexit bill, clearing the way for Theresa May to trigger the exit) and before elections in France and Germany this year.
How did the test go? According to preliminary results, Wilders’ party is set only for 20 seats, while the ruling center-right People’s Party for Freedom and Democracy will take 33 of the 150 available parliamentary seats. Christian Democrats and the centrist Democrats 66 will secure 19 each of them, while the Socialist Party is expected to take 14 seats, the same amount as the Green Party and five more than the Labor Party. Hence, Wilders came in the second place and due to the fractured system of proportional representation, he is unlikely to form a ruling coalition.
What do these results mean for the gold market? Well, Wilders’ defeat may be a signal of a reversal in the worldwide populist trend. It does not bode well for Marine Le Pen in the upcoming French elections and it rules out the possibility of a Dutch withdrawal from the European Union. Therefore, the outcome of the Wednesday’s election reduced political uncertainty, which is negative for gold, the ultimate safe haven. However, investors should not forget that the results should strengthen the euro. The rise in the common currency against the U.S. dollar is usually positive for the yellow metal. Indeed, the currency channel prevailed yesterday and the euro was boosted, as well as gold.
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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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