The Duel Between Johnson and Parliament. Will Gold Win? / Commodities / Gold & Silver 2019

Boris Johnson struggles to push the Brexit agreementthrough the British Parliament. For it can bite back! Who wins this battle? Onecould hope that gold, but this is not so certain…

Johnson’s Struggle,Explained

On Thursday, the breaking news came out that the EUand the UK reached agreement on Brexit. Theagreement scrapped the Irish backstop that had formed the bulk of theopposition to the former proposals. Naive who believedthat it would change something! We have to admit that we thought for a whilethat finally the Brexit saga was coming to an end.

But the British government still has a long way to go! On Saturday, the Parliament voted for a change tothe sequencing of the ratification of the deal. It means that they withheld support on Johnson’s Brexit deal until allthe necessary legislation is passed. In this way, the lawmakers forced theprime minister to write a letter to the EU requesting a delay until January 31.

Poor Johnson! It must havebeen tough for him, as he said previously he would rather be “deadin a ditch” than ask for a delay. Yes, it must have been humiliating for him, as he broke his “do or die” pledge to leave onOctober 31. So being upset, Johnson senta letter, but did not sign it! How clever! Only an Eton and Oxford graduatecould come up with such a brilliant idea. He also included a second letter(signed!) that made it clear he did not agree with the first letter. He wrote“a further extension would damage the interests of the UK and our EU partners,and the relationship between us.” Have your cake and eat it too, anyone?

The EU hasnot yet given a clear response. Donald Tusk, the EU CouncilPresident, has said he has received Johnson’s unsigned request and isconsulting with EU leaders on how to react. However, the EU is unlikely to denythe extension request. After a short meeting on Sunday, the European diplomatsdecided to play for time and to wait to see how things will develop in London.And indeed, this might be very interesting.

On Monday, Johnson got some more bad news. The House of Commons speaker John Bercowrefused to allow a vote on Johnson’s Brexit deal. We are starting to love British politics – it’s better than the best comedydrama!

What’s now? Yesterday, there was the first reading ofthe withdrawal agreement bill, which lays out the legal basis for UK’swithdrawal under treaty with the EU. Today, the second reading, with the firstvote, is taking place. The next phasewill be crucial, as the MPs could then start adding amendments. They could,thus, spoil the legislation, postponing Brexit or even forcing Johnson to scrapthe bill. For example, the MPs could add an amendment that keeps the UK withinthe EU customs union or that requires a second referendum. Johnson would bereally happy then!

Implicationsfor Gold

What does it all mean for the gold? Well, it’s hard totell, as the Brexit saga is getting more and more complicated and everything ischanging quickly. But there is a hint. The waves of Brexit optimism, triggeredby the announced agreement between the EU and the UK government, pushed theU.S. dollar toward its worst month since January 2018. Meanwhile, the euro moved higher against greenback, but whenthe Brexit process was once again thrown into disarray on Monday, the U.S. dollar recovered some of theearlier losses, as the chart below shows.

Chart 1: EUR/USD exchange rate fromOctober 9 to October 22.

And what about gold? The yellow metal declined yesterday, as one can see in the chartbelow.

Chart 2: Gold prices from October 20to October 22, 2019.

It may suggest that with the current market sentiment, gold is more sensitive to thedevelopments in the foreign exchange market triggered by the Brexit drama thatto the Brexit drama itself and the related uncertainty! Yes, gold is a safe-havenasset, but it is also a currency, sensitiveto what is happening with other currencies! One thing is certain, though, theBrexit is far from over, and British politics may surprise us again!

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Arkadiusz Sieron
Sunshine Profits‘ MarketOverview Editor

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