Will Brexit Raise the Price of Gold?
After three years of declining value, there has been a surge in gold prices, and since the Brexit vote, those values have been rising even more!
The price of gold – a metal that has been thought to be a wise investment in times of economic turmoil, could literally explode (in fact, they are!) following the Brexit vote.
Gold Value Movements
Driven by the economic turmoil of the world-wide fiscal crisis, the cost of gold soared to record highs prior to peaking at about $1,900 an ounce in September of 2011. As uncertainties of the fiscal crisis subsided, gold’s value declined reaching to as little as all around $1,050; however, now given the fact that Britain has left the European Union, those fiscal uncertainties have again, risen, and that has resulted in a serious increase in the value of gold.
The decision to leave the European Union has caused a serious shift in economic, financial and political power away from the United Kingdom. The remainder of the European Union, the United States and China will gain economically from this decision. That said, gold prices have been on the rise since the vote to leave the EU has been made, and yes, people are benefiting from that decision. The true impact of the Brexit will unfold over the coming months and even years, and if things go as expected, the price of gold will continue to rise.
Asian market shares were also impacted as a result of the current instability in the European Union, and they returned with a vengeance. The result of this? – The value of the pound dropped to the lowest it has been in over three decades.
The yields on US Treasuries, which are the benchmark for bonds throughout the world, reached a record low in 30 years; however, spot gold reached its highest level since March of 2014, and was trading up, at .8 percent at $1,366.86 an ounce. In fact, is surpassed the $1,358.20 mark that was hit on June 24 immediately following the Brexit vote.
In the United States, gold was also up .8 percent, at $1,369.60. Additionally, gold that was priced in sterling rose to its highest period in more than 3 years, reaching a high point of 1,069.36 an ounce.
In the short term, the Bank of England has taken steps to ensure that the British banks continue to lend, despite the financial consequences of the country’s decision to leave the European Union.
In the Long Run
Gold is usually favored as a hedge against economic and financial uncertainty, and this certainly remains true in the current economic uncertainty around the globe following the Brexit decision. William Dudley, the President of the New York Federal Reserve, said that the central bank can be patient with raising interest rates because of the low inflation and the uncertainties amidst the US economic prospects. While central bank rhetoric can calm markets in the short run, as Great Britain extracts itself from the rest of the European Union it will certainly create instability and turmoil, the exact situation the lends itself to rising gold prices.
Investors worldwide will continue to watch for signs on the US Federal Reserve’s outlook on rates from the minutes of the meetings that were held on June 14 and 15. The UBS increased its gold price forecasts from 2016 through 2020, stating that bullion had very likely gone into the beginning stages of the next bull-run.
Gold is in a Win-Win scenario with central banks right now. If central banks keep interest rates low, it will create increased inflation over time. Gold is a hedge against inflation and will rise if the value of currency drops. If central banks raise rates the economy is unstable and it will cause turmoil, this will cause people to run to gold as a hedge and it will also increase the price of gold. This is why we think right now, and especially after the Brexit, it is an excellent time to invest in gold.
The holdings in the SPDR Gold Trust, the largest gold-backed exchange-traded fund in the world, skyrocketed by 3.02 percent to 982.72 tonnes, which is the highest it has been since June of 2013. Gold isn’t the only precious metal that is projected to increase in value as a result of the Brexit vote; other precious metals, like platinum, have been trading at significant highs.
Given the increase in the value of gold following Brexit, it is safe to say that investing in this commodity is currently a wise economic decision. If you have not invested yet, it would behoove you to do so.