Print Posted on 11/09/2017 in General

Did the Price of Gold Explode After Brexit Vote Like Experts Predicted

Did the Price of Gold Explode After Brexit Vote Like Experts Predicted

Months before Brexit, some analysts predicted a surge in gold prices should the British decide to vote in favour of leaving the European Union. In Business Insider UK’s article ‘HSBC: Gold could explode if Britain votes for Brexit’, HSBC chief precious metals analyst James Steel and his team were quoted as saying that “gold prices could explode if Britons decide to vote for leaving the European Union.” Steel and his team explain that amid the uncertainty of the UK leaving the EU, gold remains a safe haven, which is the main reason why its prices could soar. A safe haven is defined by Investopedia as “an investment that is expected to retain its value or even increase its value in times of market turbulence.” It is coveted by investors who want to “limit their exposure to losses in the event of market downturns.” 

 The Gold Surge of 2016

 As predicted by HSBC and many other experts, gold prices did surge after Brexit. According to a report from Fortune, gold prices increased significantly in the two weeks after the referendum, the result of which formalised the UK leaving the EU. Gold prices had reached $1,369.60 (£1,038), a 0.8 increase, by early July, while gold priced in sterling soared to a three-year high of £1,069.36 an ounce. The surge, which World Finance notes began before Brexit, continued well into late 2016 and was further buoyed by the market uncertainty caused by Brexit, the divisive and at times unpredictable US elections, and some changes in monetary policies in the UK, the US, and other countries. 

The Price Drop of 2017

 Prices of gold began trickling down in early 2017, recovered a little mid-year, dropped again, then finally held steady ever since. The Express reported that the price of gold has declined significantly - from highs of over $1,300 (£985) last year to around $1,000 (£757) this year - in the past several months because the level of uncertainty brought about by Brexit and the US elections had reduced. In other words, investors are no longer as spooked as they were last year, and therefore do not covet as much the safety net that gold offers. The Express further notes that gold prices will likely go down even more due to rising US interest rates and the strong performance of the US dollar. A strong-performing dollar makes precious metals like gold more expensive, and thus less appealing to investors who might want to buy bullion. 

Still Worth It? 

Gold prices may be dropping, but as FXCM points out in the article ‘Trading Gold (XAU/USD)’, gold is still a precious commodity that can be traded, notably via a contract for differences or CFD arrangement, as it is viewed by traders as relatively stable. Moreover, FXCM describes gold as one of the “most exciting ways to invest in the global stock market” and a commodity that remains part and parcel of numerous investor portfolios. With 2018 already drawing near, expect investors from all around the UK to monitor the prices of gold closely.

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