Gold Surges As Pound Pounded By Brexit, UK Leadership Uncertainty
(Kitco News) - Geopolitical uncertainty is causing gold prices to spike in the United Kingdom as investors react to two high-profile resignations Monday.
Spot gold, priced in British pounds, has spiked higher and is holding on to gains as uncertainty ripples through the country following the resignation of Brexit Minister David Davis and British Foreign Minister Boris Johnson.
Spot gold against the pound is up 0.90% on the day, last trading at GBP949.71 an ounce. In comparison, spot gold against the U.S. dollar is up a modest 0.35% on the day, last trading at $1,258.90 an ounce.
The pound is currently down 0.21% against the U.S. dollar, with currency markets' reactions relatively muted to the news.
“The markets don’t know what to make of it all. For what it’s worth, our view is that sterling will be hit harder if the Conservatives can’t resolve their differences,” said John Higgins, chief markets economist at Capital Economics.
According to some market analysts, Johnson’s unexpected departure will put pressure on UK Prime Minister Theresa May. Gold in pound terms could continue to push higher if the political uncertainty escalates.
The changes could lead some politicians to call for a non-confidence vote and trigger a leadership election within the Conservative Party, political pundits added.
“Any signs of a leadership contest in the Conservative party could further weigh on the pound,” said David Madding, market analyst at CMC Markets.
However, others have said that a leadership challenge might be unlikely because the country is heading very quickly to its exit deadline early next year.
“At this point, it’s unclear if this battle will split the party or what this could mean for Brexit negotiations,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.
The resignations came after Prime Minister May unveiled a softer Brexit proposal, which includes the adoption of a “common rule book” on standards for food and goods in return for achieving greater divergence on services and digital regulation.
Johnson, in particular, has not been shy to voice his displeasure with May’s proposal, comparing it to “polishing a turd.”
“Since I cannot in all conscience champion these proposals, I have sadly concluded that I must go,” Johnson said in his resignation letter.
In other harsh words about the proposal, he added: "What is even more disturbing is that this is our opening bid. It is as though we are sending our vanguard into battle with the white flags fluttering above them."