The decision by the United Kingdom to exit the European Union had immediate political, economic and security repercussions not only to Britain, but also to the rest of the world. The Brexit, the term coined for the UK exit, has raised several debates on who exactly are the winners and losers of the referendum vote.
However one thing is certain, irrespective of who won or lost, gold and other precious metals have received a significant boost in price as investors rush to buy more. Since the referendum vote, the price of gold has steadily risen and is expected to reach an all-time high towards the end of the year.
Why is this?
The main reason is that the Brexit caused a significant decrease in the value of the British Pound. With investors fearing massive losses, the next logical step for the market was to hedge against the decreasing pound. Precious metals like gold and silver are used to hedge against currency.
Market Reaction to the Devalued Pound
The exit vote dealt a great blow to the British Pound. Lack of investors’ confidence in the United Kingdom’s economy led to the devaluation of the Pound. Almost immediately, the demand and price of gold increased exponentially.
Immediately after the Friday vote, gold prices increased by five percent. By the next Monday, they had risen by another 5 percent. Today, gold prices have increased by a whopping 25 percent to over $1,300 per ounce. This is the highest price in the last two years. By all indications, these prices are set to increase further going into 2017.
Within the gold industry, companies have seen a significant rise in their stock. A case in point is Miner Newmont’s stock price that has doubled in the last one month. Additionally, other precious metals like silver also saw a sharp increase in demand and price. As a matter of fact, silver prices increased by an unprecedented 10 percent per day.
Although the US dollar saw a modest growth rate of 1 percent, European shares indices did not fare well. They dropped by up to 6 percent.
What the Future Holds for the EU
The market skepticism caused by the Brexit and the devalued British pound favors gold investors. With the Brexit vote believed to be the first of many future exits, the price of gold and other precious metals is expected to rise competitively as investors look for safe alternative investments.