Gold One Week before British Election

There is only one week left before the U.K. general election. What are the current polls and what do they mean for the gold market?

When the campaign started some polls gave the Conservative Party almost twice as much votes as the Labour Party – in short, a landslide victory was the most likely outcome. However, Theresa May’s lead in polls has recently narrowed. She is still expected to win, but she blew a huge advantage. Actually, the Tories may lose some seats. As one can see in the chart below, May had a lead higher than 20 percentage points in mid-April. Now, it narrowed to less than 10 percentage points. According to some polls, it dropped to just 5 percent.

Chart 1: Opinion polling for the 2017 United Kingdom general election (the chart presents a moving average calculated from the last ten polls released on or before 29 May 2017)

(Click on image to enlarge)

What does it mean for the U.K., Brexit talks and gold? Well, if the race tightens furthers, it could result in a “hung Parliament”, with no party having an outright majority. It would undermine May’s position in negotiations with the European Union. Hence, if Conservatives win without a (significant) majority, a hard line approach to Brexit could be less probable – it would be negative for the gold market. The same applies to the scenario of the Labour Party’s victory. However, Corbyn’s triumph would shock the market and boost the safe-haven demand for gold, at least in the short run.

The key takeaway is that Tories’ lead over the Labour Party has narrowed significantly, but the Conservatives are still expected to win. But should we trust the U.K. polls, which were wrong about the outcome of the previous general election and the referendum on the exit from the EU? So anything can happen, especially if the current dynamics continue – gold could gain temporarily on this uncertainty as a hedge against the scenario of Corbyn’s victory.