A Not So Hard Brexit
October 24, 2016
Dennis Gartman is editor and publisher of The Gartman Letter, and strategic advisor of the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN). He regularly contributes to AlphaBaskets and lends his institutional insight to educate advisors and investors about commodities and the forex markets, including about trading gold in different currency terms.
We turn our attention to the UK and the EU, noting that Prime Minister May went to her first EU summit meeting last week and appeared prepared to be a bit more conciliatory toward the Continent. As she said, “We still want to trade freely with goods and services with Europe.”
Of course she does and she said that knowing full well that to achieve that end result shall require some “give and take” on both sides. She made it clearer, it seems to us, that she wants to back away from a feared “Hard Brexit” as it is referred to, taking the UK’s eventually separation from the EU along a less egregious, less “combative” path.
The French have been the most difficult, it seems, toward the UK, with Mr. Hollande, the President of France, having said last week that if Ms. May wants a ‘hard Brexit’ negotiations will be equally tough. Ms. May has said that she intends to invoke Article 50 by the end of March of next year, which means that the UK will be out of the EU by March of ’18, “hard” or “easy” either way but she has been reasonably conciliatory toward the Continent and likely shall remain that way.
However, her path toward conciliation was made all the more difficult following the collapse of the talks between Canada and the EU regarding the trade agreement there. We are stunned by the sheer lunacy and backwardness of the collapse of these trade talks over the CETA… the Comprehensive Economic and Trade Agreement… that has evolved following the demands made of Canada by Wallonia. Who… or what… is Wallonia, one might reasonably ask? It is the poorer and southern “half” of Belgium, which has been divided over the years between the Walloons and the Flemish. Under EU law, trade agreements such as this have to be passed unanimously, and with half of Belgium opposed to the agreement all of Belgium cannot vote in its favor and the rest of the EU’s member states are left to wonder “What the heck just happened? And what is actually going on that shall allow Wallonia to dictate to us?!!!”
Regarding gold, we shall sound like the proverbial “broken record” but we shall repeat what we’ve written about and discussed over the course of the past several weeks: that since the 7th of this month as the EUR has fallen gold has risen, with the latter’s weakness a bit more serious than is the latter’s strength. Nonetheless, where in the past a weaker EUR would have given way almost immediately to weaker gold prices that is no longer true. Indeed, since the 7th, the EUR has fallen from 1.1129 then to 1.0872 this morning, while gold has risen from $1255/oz. then to $1266 this morning. We see every reason to believe that that trend shall continue.
Indeed, the collapse of the CETA talks noted above exemplify the problems attendant to the EUR and make it clear why “money” will at the margin continue to leave the EU and will look for safer harbors when and where it can. So, since the 7th of this month, gold has gone from €1127/oz. then to €1164. Gold in US dollar terms has risen 0.9% over the period; it has risen 3.3% in EUR terms. With the monetary authorities at the ECB with no choice, really, other than to continue their expansionary monetary policies, we see gold in EUR terms making its way toward €1200+ over the course of the next several weeks and months even if gold in US dollar terms does little if anything.