Global Industrial Slump And Brexit Dance Go On. Will Gold Bop?

The Brexit saga continues. Both the U.S. and China's industrial sectors suffer from the trade war. How will the Fed react to these downside risks tomorrow? The expectation is that it'll cut rates, but will that really happen? And how will gold take to that?

Brexit Dance Goes On

Last week, we wrote about the Brexit saga, diving into the latest battles between Johnson and Parliament. But the drama has not ended yet. As we concluded one week ago, "Brexit is far from over, and British politics may surprise us again." Indeed, Johnson wanted to call a snap general election in December to gain more leverage in the House of Commons, but the UK parliament has rejected Johnson's proposal. For the third time. But Boris does not like losing, so he proposed today a new bill that lowers the number of MPs requires to pass the decision to hold an early election from two thirds to a simple majority.

In the meantime, the EU agreed to the Brexit extension until the end of January 2020. Importantly, the EU offered a "flextension", which means that the UK could leave before the deadline if a deal is approved by the British Parliament. Brexit is still far from concluded and snap elections could significantly change the political landscape. But one thing is sure for now, the possibility of a non-deal Brexit has been postponed until January 31, 2020, at least. This should reduce the safe-haven demand for gold, but also support the pound and euro against the U.S. dollar, gold's nemesis.

Industrial Weakness in China and the U.S.

But let's leave the United Kingdom, which is no longer an empire. Let's focus on true powers: China and the U.S. China's industrial profits dropped 5.3 percent in September, marking the deepest fall in four years, according to the National Bureau of Statistics on Sunday. The decline in profits shows the trouble for the world's second-biggest economy, partly caused by the ongoing trade wars with the U.S.

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