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Gold On A Post Brexit High

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Gold On A Post Brexit High

In the wake of the photo finish Brexit results, gold prices and long-term optimistic predictions regarding its reliability have caused it to experience a surge in the markets globally.

To recap the Brexit quickly:

  • 51% of British registered voters cast a ballot to exit the European Trade Bloc of 28 nations.
  • 48.1% of the British public voted to stay. This path was backed by the current government.  When the “Leave” verdict won, and the policy choice they backed was blocked the Prime Minister, David Cameron, resigned.

There is a tradition of investors trusting in bullion as a safer asset when faced with uncertainty regarding the equity markets. 

This is clearly seen as gold hit a two-year high on Friday and the climb continued on Monday.

Other markets like copper saw an escalation in price too. 

The trend from Gold investors, both small and large, has always been to trust in gold futures, although gold will be seen to stabilize eventually.

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A Little Shock To The System

Since the results for the referendum came in, the bullion markets have been perceived as storing up against the investment unpredictability in the pessimistic economic forecasts after the Brexit.

As can be seen in the graph diagram below, courtesy of www.mining.com.

US gold futures were up $7 to reach a $1329.40 high on Monday.

It is not just bullion that is surging upwards, but other metals are showing a positive swing too

Investors turned away from the Euro and Pound Sterling currencies and placed faith in the US dollar which leads to it mirroring the trajectory of gold.

p6.10

Reports from the London-based bullion platform, Bullion Vault, state that trading was over the $13 million mark for gold at 0630 GMT on Friday, June 24, 2016. 

That set a new record for trading within 24 hours when trading closed at midnight.

The reason for the activity, according to industry sources in the executive division, is the website’s users invested heavily in gold before the crisis. 

It follows that now there is a lot of activity as they are sold to large bank profit after results came in and panic hit the markets.

The frantic activity displays the investors’ reaction to the political upheaval after the panicking Eurozone’s remaining members and the UK’s current government swayed.

Investors turn to gold and metals because they have a long history of being the preferred economic choice in times of market crisis. 

Viewing the graph below, from www.bloomberg.com, it is evident to see that in the reliability of bullion versus the ephemeral quality of paper money debate, gold always wins:

p6.11

As the late John Handley, Doctorate in Geology and small time market investor said: “Money is printed every day.  But they are not making any more gold.”

And it seems these words are relevant when looking at investor’s reactions to the Brexit market panic. 

Sterling fell to its lowest position against the dollar in thirty-one years as investors had a much-predicted knee-jerk fear to the referendum results.

To further establish gold’s upward scale, the gold investment firm, The Pure Gold company, report 69% more activity from small time and novice investors that include laypersons outside the market circles with low discretionary incomes like doctors and pensioners.

There are two methods used by all types of investors in bullion and metals. 

One is to take investments out of volatile markets such as real estate and other global markets and into safe choices like gold and leave them there. 

The second choice is to buy into gold swiftly and turn a profit when the desirability of the commodity is still high.

Both of these methods are used by market players, and the Brexit results have provided an atmosphere where both alternatives are viable.

 

Uncertainty Is Not A Long Term Prediction

Gold is a commodity that is dominated by the US dollar, the link and rise between the two will continue. 

Investors will turn to both of these for their perceived stability, and other currencies will suffer.

This is apparent in the graph below that reflects the shift from sterling:

p6.12

However, the WSJ Dollar Index was recently up 1.1% at 87.54.

The mid to long-term market view on the ground is that Pound Sterling will be just fine. 

It’s said that it will be the Euro that will suffer the actual effects of the Brexit shock

To be autonomous and in charge of favorable economic policies and selective in its trading partners can only bode well for the center of the financial world, Britain.

 

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