No For Brexit Deal, Yes For May. And What For Gold?

71 days. That’s all that separates us from the Brexit deadline. And the UK has still no clear path forward exiting the EU. Does gold have one?

Today's analysis features possible scenarios for the UK and for gold along with their likelihood. In the current political situation, it's a must-read.

Parliament Rejects May’s Brexit Deal

On Tuesday, the UK Parliament voted on Theresa May’s Brexit deal for leaving the EU. As expected, the MPs rejected her proposition. What was really surprising was the scale of defeat. The parliament voted 432-202 against May’s divorce deal, marking the worst defeat in modern British history.

The reason for that humiliating loss was the split within the Conservative Party. May’s plan was a compromise attempting to soften the divorce with the EU. But, as it often happens with compromises, it did not satisfy anyone. Some Tories wanted a more decisive split with the EU, while others wanted to remain closer or not leave at all. Both groups joined forces, crushing the deal.

What Next?

Now, the key question is what will happen next. It’s hard to say, as – we agree here with May’s post-vote statement – “it is clear that the House does not support this deal, but tonight’s vote tells us nothing about what it does support.”

Generally speaking, there are several options. The first scenario is that May will quickly deliver a new and better deal, which will be accepted by the Parliament. This plan B will pave way for a formal and an orderly exit. Given that the EU is not eager to make concessions that would please Tories, it’s not a likely scenario.

The second option is that there is no deal at all. It means that by March 29th, 2019, the UK will crash out of the EU without a formal plan in place. The consequences could be substantial, as the disorderly Brexit would disrupt supply chains and bring chaos, at least initially. Trade with the EU would switch then to World Trade Organization rules, hitting the economy. Given that the country will face unprecedented uncertainty in that scenario, gold should shine.

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