Investors are unsure about what they should be more worried about: U.S political uncertainty or European political uncertainty? In Europe, the Brexit process has been initiated, and now the United Kingdom is beginning the two-year process of separation from the European Union.
Depending on the political developments on the continent, Britain may not be the last to leave. Several candidates in the French election are calling for Frexit, the exit of France from the Union and the shared currency. If this was to occur, there is almost no way the Euro would survive.
Most gold investors remember the massive precious metals rally that resulted from the Brexit referendum in 2016. Now, a similar referendum in France could result in the same type of upside. The Euro has been heavily discounted over the last two years, but the market is currently not pricing in a collapse in the currency. And if such a surprise occurred, the downside would be monumental.
According to UBS, LePenn has a 40 percent chance of victory in the French elections, but this doesn’t necessarily mean she will be able to take France out of the union. The majority of French voters still support the single currency.
The United States and Trump.
The United States’ political uncertainty is perhaps more ominous due to the complex interplay between U.S rates and the health of the global economy. Most of the optimism surrounding the global economy stems from Trump’s pro-business policies of tax cuts and deregulation.
The American president met his first major roadblock while trying to repeal Obamacare. And if similar setbacks continue, the entire reflation trade could crumble – sending the U.S stock market and global economy down with it.