Gold Bullion Surges 6% In USD As BREXIT Creates Global Contagion Risk

Note: Our trading desk will be open until 1800 UK time today (BST) and from 0700 UK time Monday morning (Monday 27th), in order to deal with the increased demand for precious metals.

Gold Note

– There has been record online sales on the GoldCore website for this time of day and the phones are ringing off the hook. We have had more sales than during the Lehman crisis and at the height of the Eurozone debt crisis. It is nearly all buying with a preference for gold over silver. We may have to restrict trading to existing clients if we continue to see this level of demand.

– We are seeing more selling than expected and seeing some clients choosing to take profits after the very sizeable short term capital gains. As a percentage of overall trading though, sellers are vastly outnumbered by buyers.

– Bullion inventories had already been increased to record levels and we are confident that the UK leaving the EU will lead to a sustained increase in coin and bar buying in the coming months.

Markets Today (Finviz)

Facts

– Sterling and euro have fallen sharply on Forex markets
– Gold surged 20% in sterling to £1,015/oz
– Gold now 14% in higher in GBP at £960 per ounce
– Gold 8% higher in EUR and 5% higher in USD
– Stocks globally are down sharply – FTSE down 9%
– European stocks down sharply – Euro Stoxx 50 Futures collapsed over 11% at the open
– Bank shares are down 20% to 25%
– Cameron has resigned – adding to uncertainty in markets
– Record online sales at this time of day for GoldCore
– Nearly all buying with a preference for gold over silver
– Some selling – with some investors choosing to take profits after sizeable short term gains

Ramifications

– There is the real risk of contagion in the EU
– UK leaving the EU increases the risk of the EU disintegrating as it greatly increases the risk of France, Italy, Spain, Netherlands and Greece following the UK
– This poses risks to the “single currency,” the euro as these nations may revert to their national currencies
– Still fragile UK, French, Italian, Spanish, Greek and Irish banks are coming under pressure
– The uncertainty and shock is likely to undermine business and consumer confidence and likely lead to a recession in the UK and will likely impact an already vulnerable Eurozone and global economy
– Central banks are likely to embark on further QE and further devalue currencies in order to prevent recessions

UK

– The UK is likely to enter recession which will lead to further QE and see sterling devalued more over the long term
– The UK total debt to GDP ratio is over 450% which also poses severe risks to the economy and sterling
– UK banks remain vulnerable and in the event of contagion will likely see bail-ins and deposit confiscation
– British people, companies etc. are very exposed to sterling. One way to hedge and protect against that risk is to diversify into physical gold and silver.

Ireland

– The sharp fall in sterling versus the euro is likely to lead a serious fall in Irish exports to the UK which will impact jobs and the Irish economy. This combined with already heightened global risks may lead to a recession in Ireland – impacting the Irish stock and property market
– Longer term the euro looks very vulnerable and may collapse as warned of by Soros and many others
– Irish banks remain vulnerable and in the event of contagion will likely see bail-ins and deposit confiscation
– Irish people, companies etc. are seriously exposed to the euro. The way to hedge and protect against that risk is diversify into gold.

Conclusions 

– The Brexit vote underlines the importance of owning gold as vital financial insurance in these uncertain times. The degree of risk means that investors should consider having higher allocations of 25% to 30% to physical gold and silver coins and bars.