Britain will vote in less than two weeks on whether or not it wishes to officially remain within the European Union. Anxiety regarding the broader ramifications of the referendum, popularly known as “Brexit”, grew last week after a number of polls reported a majority of UK voters favor national sovereignty over continued EU membership. The number of undecided voters is still significant enough to sway the June 23rd referendum either way. The “remain in” group has increased its rhetoric with dire predictions of economic collapse and global financial market Armageddon should Britons chose the exit door instead of the status quo. According to media reports the economic chaos unleashed by a “Brexit” would depress asset prices by up to 20% and lead to a sharp appreciation in precious metals. London based investment banks plan to respond to this anticipated “volatility crisis” by scheduling staff during the middle of the night and into the early morning hours of the 24th when the referendum result will be announced. Gold is expected to rocket sharply higher in the event of a “Brexit” as “panicked investors” flee towards safe haven assets, or fall like a stone due to receding anxiety should the “remain in” group prevail and life return to normal. Such a simplistic outcome is highly unlikely to occur. In fact, the opposite is more likely to take place. Investors shouldn’t assume that a widely discussed and much anticipated event would catch the market off guard and cause excessive volatility in the precious metal sector. A brief currency reaction in Sterling and the Swiss franc against the Euro during the early morning hours of the 24th and a move in UK equities on the open might be the only fireworks of the day.
When Britons wake up on the morning of the 24th, whatever the outcome of the referendum, they will still be in the EU and continue to be so for at least another two years. The process of leaving the common market, assuming the referendum passes, is complicated and requires a formal procedure between the UK government and the European Union’s governing body. The population’s decision is advisory and not legally binding. The vote of the British people requires a majority vote in the House of Commons by the Ministers of Parliament to gain legal status. Unlike Switzerland, Britain is not a direct democracy. David Cameron, the British prime minister, would probably be forced out of office after an exit vote, requiring time to elect a new conservative leader to make the EU request. Only once the British government had its house in order could it then invoke article 50 of the Lisbon Treaty and begin the arduous 2 yr process of voluntary withdrawal from the European Union.
The outcome of the British referendum will not alter the direction of current ultra loose central bank monetary policies or magically spread fiscal discipline to governments across the globe. Without a meaningful tightening in monetary policy or fiscal austerity on a global scale the upward trend in gold will remain intact. The short-term price of gold has been influenced by changes in US Federal Reserve interest rate policy not fears of a “Brexit”.
by Eric Schreiber