Direxion Shares Exchange Traded Fund Trust (JNUG): How the British Snap Election Would Affect the Gold Market
Theresa May has called a snap general election in the U.K. What does it imply for the gold market?
Yesterday, Theresa May, the British prime minister, announced that she wanted to hold a snap general election on June 8. It was a surprising twist in the Brexit saga, given she had repeatedly ruled out having an election until 2020. May argued she wanted “unity” at Westminster during talks on Brexit, but is seems to be nonsense, as the very job of opposition is to oppose the government.
Why did she call a snap election, then? Well, there are many reasons. First of all, the British prime minister could want to take advantage of the Labour Party’s weakness. Right now, the Conservatives have about a 20-point lead in the polls, which is a recipe for a landslide. The snap election could also strengthen the personal mandate of unelected Theresa May and give her greater freedom to negotiate a harder Brexit. And some analysts point out that the British prime minister simply wants to secure a significant parliamentary majority before the full consequences of Brexit become obvious to the voters.
What does May’s decision mean for the gold market? Well, it is too early to determine with certainty. On the one hand, a snap election creates additional uncertainty, which could spur some safe-haven demand for gold. On the other hand, the outcome of the election may actually reduce uncertainty, as the Tories are expected to win. If the Conservatives triumph, they will strengthen their power and Theresa May will boost her credibility. Such a scenario would be rather negative for the gold market.
However, the impact of the news on the yellow metal was limited yesterday, which suggests that the news doesn’t add a new thread to the current global geopolitical uncertainty – actually, the Tories are already ruling the country.
What is certain is that the Brexit process has proved to be full of surprising twists. With the election almost two months away, a lot may happen – and a lot may affect the gold market.