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Brexit And Gold

|Includes: SPDR Dow Jones Industrial Average ETF (DIA), FXB, FXE, GLD, QQQ, SLV, SPY, USO, UUP
Brexit Gold

Gold to Jump on Brexit? 5 Financial Shocks from History Say Yes By The Street

The return of money managers to gold investing across Western markets in 2016 has pushed bullion back to 2014 prices. But the risk of a Brexit shock to the British pound and the UK's FTSE stock index is really concentrating minds in the UK.

Gold priced in Sterling has risen 30% so far in 2016, fixing in London at a three-year high of £931 ($1,328) per ounce on Thursday afternoon. Starting the year at £716, that's marked the fastest six-month gain for gold since the global financial meltdown peaked with summer 2011's U.S. debt downgrade, Eurozone crisis, and English rioting.

British gold investment demand has leapt alongside the price, with new UK-resident account openings here at BullionVault (where I run the research desk) rising 75% on a daily basis so far in June compared with the last 12 months' average. Contrast that with the 23% rise across our physical gold and silver exchange's next nine largest markets (led by the U.S., France, Germany, Italy).

Buying gold for diversification long-term has a good historical record, both for UK and U.S. investors. Short-term, history says it could offer a good crisis hedge as well.

Market Shocks Gold Returns

Looking at five historic shocks to financial markets, gold priced in Sterling has risen by an average of 2.0% on the morning of the shock, and a further 1.4% that afternoon.

Over the following week, gold rose another 3.6% on average for UK investors, offering a solid counterweight to the shock drop in Sterling, shares and other assets.

1970s oil crisis

The Yom Kippur War began on Saturday 6 October 1973, when Egypt and Syria attacked Israeli-occupied lands in Sinai and Golan Heights. Gold opened Monday sharply above the previous Friday's two-month lows. Within six weeks of that shock, gold never again traded below the £40-per-ounce level.

1987 stockmarket crash

Gold fell steadily throughout the 1980s and '90s. Priced in Sterling, gold began October 19, 1987 (Black Monday) near a 12-month high at £286 per ounce, a level not seen again until 2005.

1992 ERM crisis

Britain's ejection from the euro currency's predecessor, the Exchange Rate Mechanism, on October 16, 1992 (Black Thursday) stemmed gold's long decline at £189 per ounce. It then rose to £274 within two years as the pound was devalued by the currency markets.


Having fallen steadily for two decades running, dollar gold prices had found a floor one month before 9/11 at $255 per ounce, and jumped as news broke of Al-Qaeda's attacks on the United States. The Sterling gold price had turned higher in mid-1999 from £158 per ounce. Since 11 September, gold has never again traded at that morning's price of £186.

2008 Lehman Brothers' bankruptcy

Gold priced in Sterling was already highly volatile, and it slipped and surged in dollars as the financial crisis tipped towards a collapse. But as with 9/11, gold has never since traded below 15 September 2008's morning price of £433 per ounce.

Whatever you make of the UK government's end-of-days warnings on a Brexit vote, the consensus on Wall Street and in the City of London also says Brexit poses untold threats to global financial liquidity, asset prices and confidence.

At least UK investors have advanced notice this shock could be coming.

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