People tend to buy gold when they fear economic or financial crisis ahead. That makes it an urgent decision for U.K. savers right now. Money managers and retail investors have sent bullion demand higher across all Western markets to date in 2016, but the risk of a Brexit shock to the British pound and the FTSE stock index, however, is really concentrating minds amongst people in the U.K.
Gold priced in sterling has risen 30% so far in 2016, fixing in London at a 3-year high of £931 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 the U.S. debt downgrade in the summer of 2011, the euro zone crisis, and English rioting.
British gold investment demand has leapt alongside the price, with new U.K.-resident account openings here at BullionVault 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).
Headline writers and analysts link the damage already hitting U.K. asset prices to the huge uncertainty spurred by next week's vote. Yet only a quarter of gold's move for U.K. investors, however, has come from the drop in sterling.
Adjusted by the Bank of England's Broad Trade-Weighted Sterling Index, gold would still have gained 21% to £869 per ounce in 2016 to date if the pound hadn't fallen on the currency markets. So the high-risk event of next week's U.K. referendum on leaving the European Union in fact seems to offer a moment of focus for this year's wider financial and geopolitical risks.
Whatever you make of the U.K. 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. The "leave"campaign's strong upturn in British opinion polls since last weekend looks the immediate cause for gold's surge to multi-year highs against all major currencies except the Japanese yen on Thursday. Most especially after the Fed surprised no-one by holding rates unchanged, but blamed its "no hike" decision in part on the Brexit vote.
With big gains come big pullbacks, and profit-taking was sure to hit gold at some point. The metal hasn't had a surge like this since the peak of summer 2011. Existing owners awoke Thursday to three-year highs in sterling and euros, and two-year highs in the dollar. Analysts turned universally bullish in their morning notes. That should have put short-term traders on notice.
Moreover, a vote to quit the European Union next week could in fact see gold prices fall, reckons a note from
All correlations go to one in a crisis, but whichever way the referendum goes, this volatility in gold on the U.K.'s increasingly bitter and divisive Brexit debate could prove just a foretaste of what's coming with November's U.S. election. The underlying 2016 uptrend remains intact, meantime, along with the low-to-negative interest rates, QE money creation, and loss of confidence in central bankers driving it.
