Article 50 and Gold

Last week, Britain formally launched the Brexit process, triggering Article 50. What does it mean for the gold market?

On Wednesday, March 29, Theresa May, the British Prime Minister, invoked Article 50 of the Lisbon Treaty. In that way, Britain gave formal notice to the European Council of its intention to withdraw from the EU in order to allow withdrawal negotiations. In other words, the UK officially began the two-year process of an exit from the EU.

Despite its historical importance, the move did not affect the gold market significantly. The reason was probably the fact that the action was highly anticipated, as Theresa May had announced earlier her will to trigger Article 50 in March 2017. However, it does not mean that the Brexit will have no impact on the precious metals market. A lot depends on how amicable the negotiations will be. If the negotiations start to go wrong, or if it turns out that there will be a harder exit than expected, the safe-haven demand for gold should rise. On the contrary, if the talks look well, or a softer Brexit than currently expected emerges as the most likely scenario, the price of gold may decline.

Anyway, gold investors are advised to keep their heads cool, as doomsday scenarios for Brexit have not materialized and the price of gold has not soared. The exit process will be very gradual, which neutralizes its impact on the markets.

One thing is certain, the upcoming two years (or even more) should be very interesting and a lot may happen along the way. Indeed, Scotland’s First Minister Nicola Sturgeon has already called for a second referendum on Scotland’s independence. And the future of Gibraltar, the tiny British territory located on the southern tip of Spain, has become another hot dispute of the exit talks. There are many other problems to solve: what about Northern Ireland, what about British citizens living in continental Europe, what about immigrants working in the UK, what about new trade relations, etc. Each of these issues may start another row and create a lot of uncertainty, which should support the gold prices, at least temporarily.