What Brexit Could Mean For Your Money And Your Business

Gold fell 1.3 % in dollar terms and 3% in sterling terms today as sterling and global stocks surged as Brexit worries ease slightly.

Gold in GBP – 30 Days

The prospect of Britain leaving the EU is causing widespread jitters. “What will it really mean” was examined by Emma Kennedy, the Personal Finance Editor of the Sunday Business Post yesterday (excerpts follow):

“With less than a week to go until British voters decide on the future of their country’s relationship with Europe, investors and markets are very jittery indeed.

In this climate, gold, a traditional safe haven for investors, has soared.

Demand for gold could rise further if Britain exits the European Union.

“There’s been record demand for gold in the first quarter,” particularly from institutional investors, said Mark O’Byrne, research director at Goldcore.

“The big investment houses, the hedge funds, the likes of Munich Re and Blackrock” are all taking an interest in gold, according to O’Byrne.

He believes that gold will “fall back” if British voters decide to remain within the EU. In this scenario, he also predicts a “relief rally” as stock markets bounce back after the pre-vote jitters. “The fast money will liquidate,” he said, indicating that some investors would move away from gold.

“If they do vote to leave though, gold will rise,” he predicted. “Gold thrives in that uncertain environment. It is largely inversely correlated to other asset classes.”

However, O’Byrne believes that, whatever way the vote goes, the fundamentals of gold are “very strong”.

“One of the big negatives often discussed in relation to gold was that it ‘doesn’t yield anything’, but many bonds have negative yields now,” he said. This is something he sees as a big factor for investors considering an allocation to gold within their portfolio.

In O’Byrne’s view, investors need to look beyond June 23. “Brexit is a short-term thing,” he said. “But there are bigger global factors too: negative interest rates, the scale of geopolitical risk.”

On those risks, a few things will affect investors in the months to come, according to O’Byrne. “The rise of Trump, the polarisation of politics globally,” he said. “A lot of our clients are worried about the ramifications of the US election. A lot of people are nervous about equities and bonds.”

A rise in risk aversion is also good news for deposit takers. However, a flight to cash is a tricky choice for investors, given the low interest rate environment.

In a Brexit scenario, some asset classes – and some geographies – will perform better than others, experts say.

If Britain votes to leave, BlackRock’s Turnill said “the assets you want are ones that benefit from a risk-off – like gold, potentially areas like long-dated US treasuries”.