The ruling conservative Popular Party won Spain’s general election, but is short of majority. What does the new political reality in Spain mean for the gold market?
The populist politicians – both left-wing and right-wing – are on the march all over the world, but especially in Europe. Populist are in power in Poland and Hungary, and in the governing coalition in a few other countries. The National Front has almost won the regional elections in France. Syriza rules in Greece. Jeremy Corbyn became the leader of the British Labour Party. Last month, the Socialist Party, the Communist Party and Left Bloc formed an anti-austerity government in Portugal. And now the Podemos – a radical, anti-austerity socialistic party similar to Syriza – became the third political power in Spain (due to the high unemployment rate, especially among young people, in the country).
The recent Spanish election ends the era of two-party dominance. The conservative Popular Party won 123 seats and 29 percent of the vote, far from the majority in the 350-seat legislature. The PSOE (socialists) took 90 seats and 22 percent of the vote. Podemos got 69 seats and 14 percent of the vote. And the Ciudadanos (a centre-right newcomer) won 40 seats and 14 percent of the vote.
The results mean the political instability in the short-term, as the vote produced no clear winner. The Popular Party will have to form a fragile minority government or find a coalition partner among the left-wing parties (the Ciudadanos has not enough seats). Alternatively, the PSOE, Podemos and the Ciudadanos will form the wide coalition, as in Portugal (however, there are strong differences between the Podemos and the Ciudadanos). This would be the worst scenario, as government heavily influenced by Podemos could lead to a reversal of recent structural reforms and transform the country into a new Greece. We cannot also exclude another election next year. Investors should also remember that the situation in separatist Catalonia remains unresolved, which could become a source of problems in the nearest future.
Summing up, the recent Spanish elections generated no clear winner. The unstable political situation in the Eurozone’ fourth-largest economy and the increased importance of radical anti-austerity Podemos could boost some safe-haven demand for the gold. On the other hand, the uncertainty about the political situation in Spain could exert downward pressure on euro and upward pressure on the U.S. dollar – it would be a negative scenario for the gold market (but after the results, the euro and gold actually gained, probably due to short covering of existing bearish bets in the run up to the election). However, the gold trade is mostly (at least now) about the Fed’s actions and the U.S. economy, therefore the Spanish elections should not affect the gold market significantly (at least not yet).
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Sunshine Profits‘ and Editor