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How Has Brexit Affected Gold Prices?

The advisory referendum that was held in the UK on 23rd June 2016 regarding the UK’s membership of the European Union resulted in somewhat of a shock as ‘Brexit’ made headlines around the world. Doomsayers predicted an immediate and damaging impact on the economy that will leave the UK crippled, but so far these predictions have remained untrue.

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Somewhat surprisingly, the UK economy actually grew by 0.5% in the three months following Brexit. However, it is true that the pound has taken a knock and remains at a much lower rate than before the vote. But how has Brexit affected other assets across the world, such as the price of gold? Now that the dust has settled a little from the referendum result, we explore below just what impact it's had on gold and also take a look at other precious metals investment as well.

So what impact has Brexit had on gold prices?

To be straight to the point, the price of gold has thrived since the Brexit vote to leave the EU. While the pound, bonds and interest rates have taken a beating, the price of gold had risen to its highest point in two years in the US as of early July and the highest point in three years in the UK, rallying as much as twenty-one percent in the early trade.

It was predicted back in June that if the UK voted to leave the EU, the price of gold would rise to around $1,400 per ounce from $1,257, a rise of 8% from pre-Brexit levels. These figures were based on previous dramatic events, such as when Greece almost left the Eurozone in July 2015.

Post-Brexit, these predictions were more or less spot on, with the price of an ounce of gold rising to around $1,327 (£1,003) from June levels. However, it must be said that this follows a trend in the rising price of gold throughout 2016, which has seen it rise to more than a 40% in Sterling since the end of 2015.

Things were in a much greater state of fluctuation immediately after the Brexit vote amid a huge amount of uncertainty. Since the appointment of Theresa May and the steadying of the FTSE 100, the rise in the price of gold has steadied accordingly.

The increase in the demand for gold investment has largely been attributed to US investors seeing the volatility that occurred after Brexit and anticipating the instability that was expected around the presidential election. It's also true to say that UK investors also piled into gold with step into the unknown which Brexit has brought. Tax-free gold is regularly seen as a safe hedge and form of protection against economic, political, and financial uncertainty.

Helen Lau, an analyst at Argonaut Securities in Hong Kong, said:

"No one is able to understand how much risk is yet to be unravelled (from Brexit). That is an uncertainty that no one likes. This is what is driving gold prices higher."

The Brexit vote, as well as causing a rise in the price of gold, also caused shares in gold mining companies to rocket as well.

What else is causing a rise in gold prices?

However, it isn't just Brexit that has caused the price of gold to rise, and as previously mentioned there has been a steady increase since the beginning of the year. But what else is causing the price of the precious metal gold to increase?

Interest rates

When interest rates drop, the demand for gold tends to rise. As interest rates fall, so too do bonds and cash savings, so people seek higher yielding places to spread their money. This is why tax-free gold and gold investment increase in popularity during low interest rate periods.

At the end of 2015, the Federal Reserve in the US hiked interest rates for the first time in seven years while the UK interest rate remained the same at 0.5%. However, poor economic figures for the US in June meant the Federal Reserve had to scrap plans to raise interest rates again.  Recently the UK slashed interest rates to 0.25% following the Brexit vote. This has all helped increase gold prices. It's worth noting that gold prices and interest rates are not two directly opposed forces, and a rise in interest rates, which signals growth and increased spending, can encourage investing in tax-free gold.

The dollar

The dollar, on the other hand, is something of a rival to gold. They do have a much more inverse, opposite relationship, and when one rises the other tends to fall. When the price of the dollar rises, investors prefer to stock their money in the currency as opposed to the precious metal. Recently the dollar has been falling, therefore explaining a rise in the price of gold.

Crisis in the Eurozone

After Greece's bailout and recessions in Italy, Spain and Ireland, people have felt somewhat uncertain about the Eurozone. This was, of course, not helped with the constant rhetoric surrounding the UK's referendum on EU membership and subsequent Brexit. Spanish, Italian, and Portuguese bonds have also been performing poorly in recent months, and this results in a direct rise in gold prices.

High demand for gold in China

China has always had a huge liking for gold, and this hasn't changed in recent months. They've been increasing their gold reserves by a whopping 71.4% over the last year, during which the central bank has only increased their overall reserves by 2.85%. As demand for gold increases, so too does its price.

Donald Trump and the presidential election

Gold prices soared as Donald Trump claimed a shock election victory on 8th November 2016. This was, again, due to uncertainty and a falling dollar rate. However, the ship has steadied, and the price of gold fell again as a result.

Tax-free gold thriving in changing markets

Brexit, interest rates, and presidential elections have all impacted the price of gold around the world. This shows us just how much varied market events can affect it, especially when turmoil, speculation, or uncertainty are at play.

The uncertainty surrounding Brexit and the presidential election specifically saw a 44% demand rise in the third quarter of 2016 compared to the same period in the previous year. This continuing trend with uncertainty and a rise in gold prices makes for a good indicator for people looking to spread their investment portfolio to precious metals for future events.

The rising price of silver and platinum

Tax-free gold isn't the only precious metal that has seen an increase in the wake of Brexit, and other metals such as silver and platinum have also noticed a sizeable rise. In fact, silver specifically has seen a larger increase than gold, with a price increase of around 19% since the referendum.

Brexit has also helped platinum to rise by 2.09% to $986.50 an ounce as of the 24th June.

Why is investing in precious metals a good long-term strategy?

Regardless of the differences in the rising price of gold, silver, platinum or any other precious metal, it's clear that precious metals are one of the biggest winners from the Brexit vote. When uncertainty is running high, interest rates are being slashed, employment cuts are being made, and economic turmoil is all around, metals like silver and gold are still able to offer a reliable and worthy form of investment. The precious metals have outperformed all other assets since the Brexit vote back in June, and investors, whether large or small, can rely on a much safer haven when it comes to tax-free gold and tax-free silver.

If you're interested in spreading your investment portfolio with gold investment or silver investment or are simply looking to buy gold coins online, there are multiple gold dealers available, such as Physical Gold, who are ready to help.

In many ways, it has been something of a tough year for investors with the Brexit vote and the lack of clarity and tension that followed. When people feel their money and life savings are under threat, stress levels can rise to the extreme. Investing in tax-free gold and tax-free silver are safe and reliable ways to secure your money and your future.

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