Brexit: What will happen to Gold if we leave the EU?May 13, 2016 11:09 am
Brexit: What will happen to the Gold Price if the UK leave Europe?
Several years ago, I reluctantly remember I hasten to add, glumly staring down at a heavy EU Constitutional law book with an image of a faded blue Brussels and a rippling EU Flag. EU law was one of my least favourite lectures of my law degree. It was filled with pages of bureaucracy, everything minutely documented in giant statutes. The only moderately interesting aspect was in the first and second lecture to do with the evolution of the EU and subsequent aspects of Human Rights. Other than those pockets of interest, those four hours every Thursday for a year was eye-poppingly boring. It was probably one of the sole reasons I didn’t pursue a career in law. Despite this damning account of EU law that I’m certain every student-lawyer lives through at some point (if it’s not EU Law, it’ll be Equity and Trusts, or perhaps Land Law – the woes of a law student), I still haven’t quite picked a camp yet. With Brexit it really is a case of: Do we stay with the devil we know? Or do we take this opportunity and venture out alone? – I’m none the wiser.
What is Brexit and are we likely to leave?
On the 23rd June, we will be voting to stay in the EU or we will be voting to leave it. I haven’t looked at many polls but from speaking with clients and friends alike, it is rather split and it isn’t easy to tell who picks what. The FT have a Brexit poll running which currently has 46% Stay and 43% leave with a margin of undecided voters in the middle. Whatever the outcome is, the sentiment to the run up is going to be one of uncertainty. For Business leaders and those in management trying to plan ahead, uncertainty is a devil and contingency planning is going to be robust for Brexit.
What will happen to the Gold price?
As the Bank of England warned yesterday, an exit from the EU carries with it the likelihood of a recession. With the fear/jubilation of Brexit mounting as we get closer, it is likely the markets will respond according to the polls and sentiment. The sterling currency is likely to be weakened/strengthened depending on what the polls are reporting. My guess is the polls are only going to be move by two or three basis points in either direction. I don’t think there is going to be much science involved. With that in mind, the pound will probably weaken, something that has already begun to be factored in. If we leave the EU altogether, Sterling may well fall considerably.
In this event, the gold price in sterling will potentially go higher. Usually in this instance, when sterling falls against the dollar, the gold price moves up for us as the gold price is set in dollars. I wouldn’t be surprised if to counter this, the gold market will be buoyant up until the vote. We’re already having people ask us for Kilo Bars and hundreds of Krugerrands in preparation.
Verdict: Brexit is hovering and its uncertainty is beginning to be felt in the markets. Currency has already begun to feel downward pressures. The Bank of England have also given a sharp warning that in the even of a Brexit we will likely fall back into recession. Bank of England Growth Forecast has been revised down to 2% which reflect this sentiment. In times of uncertainty as with 2007 & 2008, to remain with strong purchasing powers and to stablise their capital, investors flooded into gold. I call it the “law of the yellow metal” and Britain for the next few months is in the Dock.
Article by Michael Cooper