2017 General Election - What It Means For Gold
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A Hung Parliament, The Unexpected Result
The results for the 2017 General Election are in.
Theresa May's Conservative party are the largest party, winning 318 seats. However, they failed to achieve an overall majority, falling short by eight seats and resulting in a hung parliament. This has forced them to form an arrangement with the Democratic Unionist Party (DUP). Whilst offering a temporary reprieve, the proposed coalition provides a wafer-thin lead of just two seats*, leaving the Conservatives in a precarious political position.
Ideally, the Conservatives would have formed a partnership with the Scottish Nationalist Party (SNP) or the Lib-Dems as this would have given them a larger majority. However, this would probably have rejected as both parties are smarting from last night's losses to the Conservatives and the Lib-Dems are still reeling from the dubious liaison with Cameron's Conservatives in 2010 which led to a coalition of chaos.
How Did It Happen?
May announced a snap election in April, confident that Corbyn would fail to inspire Labour voters and hopeful of achieving a landslide victory which would give her a free hand to conduct Brexit negotiations to her own tune.
Initially, the Conservative campaign centred around Theresa May, evoking memories of the Tory matriarch, the Iron Lady - Margaret Thatcher. This was not particularly well received and it wasn't long before the focus changed back to the Conservative party as a whole. The majority of the Tory electorate were keen to support her perceived stable and safe leadership and no-nonsense attitude to Brexit negotiations. Although, they were less impressed with the insipid Conservative manifesto and the about-turn over policies such as National Insurance for small businesses and proposed 'dementia tax'. Her refusal to engage in public debates was ridiculed and seen as a weakness. A large proportion of the campaign was spent in Labour strongholds trying to win over Labour stalwarts. To a small extent these exertions have succeeded, the Conservatives have increased their percentage of votes in a number of these areas but it was only enough to actually gain one seat.
Labour faced a huge battle. Led by Jeremy Corbyn, who failed to reassure 80% of MPs in his own party that he was the right person to lead the challenge against the Tories. His soft stance on Brexit, re-nationalisation proposals and far-left views left many Labour voters fearing a step back to politics reminiscent of the 1970's. Nonetheless, as the campaign gathered momentum, Corbyn grew in strength. Labour's manifesto promised much to those who were reliant on social and financial care. Appealing to the younger generation with pledges to abolish university fees it is reported that a remarkable 72% turnout for 18 to 24 year olds turned out to vote. There can be no doubt that this boosted Labour's 40% share of the overall vote. Labour managed to increase their lead by 30 seats. Corbyn won't take the defeat lightly and will use the results as an impetus to battle against the Conservatives every step of the way.
A mixture of fear, anger and resentment provoked the British voters to use their democratic right to cast a vote. A 68.7% turnout of the electorate, the highest in 25 years, showed that some of the voter apathy was finally lifting.
What Effect Does A Hung Parliament Have On The Economy?
Primarily, the biggest problem that a government without a majority faces is that it does not have enough votes to make decisions on policies or pass laws. An arrangement with another political party has to be made. In this instance, the Conservatives have chosen the DUP. There are some fundamental differences and beliefs between the two parties so no doubt we will see a lot of pairing and swapping in the coming months.
The British economy needs the stability and security of a government with a majority.
2017 General Election Results - What It Means For Gold
There are already rumblings of discontent among the Conservative party who do not feel that the deal with the DUP is the right choice. Theresa May's leadership has been severely weakened. Behind the scenes, rivals within her own party will be lining up waiting to challenge her role. There are strong possibilities that the new government may need to call yet another election, sooner rather than later. It almost certainly will not last a 4 year term.
Brexit negotiations are due to start in earnest in the next fortnight. The EU are keen to do a deal but May's hard Brexit may need to be softened as her bargaining hand has been weakened.
The pound sterling has been relatively weak since the Brexit referendum result in June 2016 when it dropped 10% overnight. The 31 year slump was seen as an indication of a loss of confidence in the British Pound. As the 2017 General Election Exit Polls revealed the possibility of a hung parliament, sterling dropped 2.34% to US $1.2690. The pound stabilised against the US $1.2747 and Euro €1.1379 as news of the Conservative/DUP arrangement was announced.
The sterling gold price surged up and down like a proverbial yo-yo as the results trickled in, peaking at £1007.05 before steadying around the £993 mark. As the markets closed on the first day after the election gold was £993.88. Showing a sterling gold increase of +£49.51 +5.25% over the month, US dollar gold was +$44.27 +3.63%. During the election, gold sales increased by 28% as customers looked to protect their wealth by investing in precious metals.
The combination of a weak government and Brexit negotiations increase the uncertainty factor. The outlook is indicating a weaker pound is on the cards, so don't be surprised if we see some sharp spikes in sterling and gold in the month ahead.
We are in for an interesting time ahead, political and economic.
* Sinn Féin traditionally abstain from taking their seats in parliament, if this changed it would work to counterbalance the new government's arrangement.