Last week, after hours of discussions, the EU decided to allow another Brexit extension, with the new date being October 31st, 2019. Some experts are warning that this prolonged uncertainty could possibly have a negative impact on UK growth as businesses and investors may remain hesitant. But what are the possible outcomes of Brexit? And what impact could each of these have on the gold price?
Theresa May’s Hard Brexit
A total, clean break from the European Union, Theresa May’s ‘Hard Brexit’ would mean that the UK would no longer be under EU regulations and tariffs and would be able to draw up their own rules and customs arrangements. In practice, this deal would mean the UK leaves both the single market and the customs union.
Although Britain would no longer be part of the single market, it would be surprising if the UK didn’t still establish some trade deals within Europe. However, the British economy would most likely slow down enough to weaken the Pound. This could then see demand in precious metals increase and the gold price rise.
No Deal Brexit
If Parliament can’t agree on a deal by October 31st, a ‘No Deal’ Brexit is a possible outcome. The fear for investors with this outcome is that it would leave the UK isolated due to toughregulations on transport and trade between the UK and the EU. This could mean many companies become much less productive and less profitable.
The gold price has already reacted fairly strongly to the fear surrounding a possible No Deal Brexit over the past few months. If the UK and the EU don’t agree to a deal by October 31st then a most likely very weak Pound could possibly push the price of our favourite precious metal to major heights.
There is always a chance that Brexit may not happen at all, due to a second referendum or even a general election. In the event of a ‘People’s Vote’ and the Remain side winning, then Brexit would be aborted.
This scenario would most likely see the gold price drop, as Brexit fears ease-off. It would be business as usual for the UK, and gold demand would most likely be correlated to the strength of the US Dollar and other economic and political affairs around the world.
Meanwhile, What Happens Now?
The new six-month delay to Brexit has been granted - however, we should note that if MPs do happen to come to an agreement before that date, the UK will be allowed to leave the EU at that point. The delay also means that elections will now be held for European MPs in May. If this does not happen by the 23rd May then the UK must leave the EU on June 1st with a No Deal Brexit.
Presently, during parliament’s Easter break, talks are expected to continue between the major parties to hopefully come up with some kind of agreement. But will all this delay impact precious metals? Are investors holding their breath?
Whatever happens, we should all keep a close eye on the news over the next few weeks and months because, as always, only time will tell.
This blog represents one person’s opinion only. Customers should conduct their own research and take advice before making an investment. We do not offer investment advice.