‘Brexit’ and Gold Prices

- June 20, 2016 -

Market analysts usually point to market uncertainties as factors in the pricing of commodities such as gold and oil. The ‘Brexit’ referendum and the uncertainties surrounding it has gold investors in Britain and worldwide carefully weighing both sides of the issue and the possible consequences.

‘Brexit’ is an abbreviation of the term ‘British Exit’ which refers to the possibility that Great Britain will withdraw from the European Union (EU).

Economic Consequences of a ‘Brexit’

The supporters of remaining in the EU base their opinion on the largely unforeseeable consequences of exit, rather than any emotional tie to the EU. Supporters of ‘Brexit’ base their opinion on a variety of factors ranging from the global competitiveness of British businesses to concerns about immigration. ‘Brexit’ supporters contend that the EU bureaucracy is a drag on the British economy and that EU laws and regulations are a threat to British sovereignty.

Between now and June 23rd, the date of the ‘Brexit’ referendum, these uncertainties will continue to create buying opportunities for gold and other precious metals. Already this year, the price of gold in pounds sterling has risen more than 20 percent. When priced in U.S. dollars, the increase has been only 16 percent. This spread indicates a concern over the strength of the pound relative to the dollar, with or without an EU exit in June.

A poll by Great Britain’s Financial Times reported 75 percent of over 100 of the economists polled believed a ‘Brexit’ would adversely impact the UK economy over the medium term. Meanwhile, proponents of what is known as the ‘Leave Coalition’ discount such predictions, pointing out the necessity of reestablishing the global significance of the British Pound.

Whatever one’s view is of remaining in the EU or leaving, the vote plainly creates significant uncertainty for the world’s 5th largest national economy…and the number of Brits seeking financial shelter by owning gold is rising fast.

How a Possible ‘Brexit’ is Affecting Gold Sales

The sudden rise in UK gold investing could be due to broader stock market and currency fears. It could also be due to the poor outlook for the British Pound and the FTSE (Financial Times Stock Exchange, Britain’s version of the DJIA) as well. Still the timing of this upturn in the demand for gold by UK investors prior to the ‘Brexit’ referendum seems more than coincidental.

Numerous bullion dealers worldwide have reported a significant uptick in physical sales of gold bullion to individuals taking delivery in Great Britain. This clearly suggests a serious and growing concern about the upcoming EU referendum and the risks private investors in the UK fear ‘Brexit’ poses to the value of their currency and equities.

Regardless of their personal view of the EU and the benefits of leaving or staying, the number of British savers seeking safety from ‘Brexit’ uncertainties by purchasing physical gold has clearly risen in 1Q 2016. Whether this proves to be a wise investment or not once British voters make their decision remains to be seen. The fact remains that people buy gold when they fear national or global financial troubles. A careful examination of the world’s financial issues, whether it’s the U.K., the U.S. or virtually any other country on the planet, suggests owning physical gold to be a prudent move for investors worldwide.