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The Effect of Brexit on Gold Prices

 

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When it comes to gold, 2016 has been the year of the unlikely. For the last couple of years, this commodity has not been performing so well. Then, with the New Year, things started looking up. Amid all of the uncertainty across the global markets, the yellow metal began to perform remarkably well. Everyone involved with the precious metal experienced a remarkable rate of success, in particular, ETFs that traded with the yellow metal. Just when traders and investors thought it could not get any better, the threat of Brexit began.

When the United Kingdom began discussing their intention to leave the European Union, the global economy did not rejoice. This was because from a fiscal standpoint, the Brexit was one of the worst financial decisions of 2016. Involving one of the largest economies in the world, it was undeniable that the effects of Brexit would be felt throughout the world. Therefore, even the consideration of leaving the EU sent traders and investors fleeing towards their tried and true safe haven – gold. There were more and more individuals investing in gold and other precious metals.

At the height of the fears, the yellow metal was experiencing one of its highest values in quite a while. U.S. gold reached $1,350 an ounce. This was a value that the commodity had not experienced in about two years. For a short while, the prices of the yellow metal fluctuated, rising and falling along with the concerns associated with the vote.

This, however, was just the beginning when investors were still hedging their bets against the Brexit. Of course, the election came to pass and the United Kingdom voted to leave the European Union. This, in turn, set off a series of events. The first thing that happened was that the British Pound took an incredible hit, causing the prices of the currency to plummet. In fact, it experienced one of its lowest values in almost three decades. This had an inverse, if not predictable, impact on the yellow metal. The prices of the precious metal skyrocketed, hitting the mark of almost $1,315 an ounce. Once the news hit of the Brexit, investors everywhere began buying gold and investing it.

This was ultimately a kneejerk reaction to news that many investors and traders had not imagined. Over the next few weeks, the precious metal experienced variations as people attempted to come to terms with the UK leaving the EU. However, the excitement regarding the yellow metal may not have completely died down. In fact, many financial institutions, especially HSBC, believe gold to experience startling highs. There are experts who are claiming that it may even reach $1500 an ounce next year. At the very least, many influential entities believe the prices are set to hover around $1400. It appears that many feel as though this will be the new normal for the commodity.

There have been no formal steps taken to enforce Brexit just yet, although there will be some very interesting decisions made in due time. While there has yet to be any substantial data accumulated on the matter, there has been a definite impact on the UK economy. For starters, Standard & Poor’s as well as Fitch Ratings have reduced the UK’s credit rating. Furthermore, people are expecting fewer investments, and to experience economic slowdown as a result. Finally, the pound is still quite uncertain against other currencies.

All in all, this leaves most investors with little choice. They are doing what they always do in times of economic turmoil – turning to gold. This means that the rollercoaster that this commodity has been experiencing has only just started. For all the world knows, regarding the yellow metal, the best may be yet to come.

 


 

 

Image credit: CC by Anderson Mancini

About the author: AlleyVoice

AlleyVoice is a platform that allows startups and marketers looking to connect with the AlleyWatch audience to provide content of interest – and giving them the opportunity to actively participate in the conversation.

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