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A Perfect Storm Brewing in EU with Brexit: Is Gold the Answer?

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Brexit turmoil

The United Kingdom is set to leave the European Union (HEDJ) in March. A Withdrawal Agreement has yet to be approved by both the UK and European parliaments if the UK is to leave in a planned and orderly way. The Withdrawal Agreement, which UK Prime Minister Theresa May put together with the other 27 European countries, outlines the details of how the United Kingdom should leave the European Union.

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An uphill battle on the Brexit deal

While Theresa May won the confidence vote, the approval of the draft Brexit deal is still as an uphill task. She doesn’t have enough support for the deal from her own members of parliament. Though there are many points of contention, Northern Ireland’s border is a key issue.

May is now traveling to Brussels for a summit with leaders from EU governments to extract more concessions before presenting the draft for the vote. The European countries, however, aren’t ready to give any more concessions. This situation has increased the volatility and the likelihood of a no-deal Brexit or even a no-Brexit scenario.

Brexit could be a source of major volatility

The MSCI, the world’s largest provider of investment indices, said that UK stocks (EWU) could fall 25% if UK MPs reject the government’s draft proposal to leave European Union, resulting in the country’s disorderly exit. Vanguard founder Jack Bogle said, “Investors are not paying nearly enough attention to the risks that could affect our markets: an unstable US federal government, a Brexit debacle, and a US stock market that remains at relatively high valuations.” He suggests investors buy bonds to provide stability to their portfolios in volatile markets (SPY)(DIA).

Gold (GLD)(NUGT) is also seen as a good hedge in times of geopolitical uncertainty and can provide investors some stability in this market environment.

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