Ever since Britain’s shocking decision to leave the European Union in June, investors have been flocking towards gold in their droves. Gold is traditionally a safe haven asset and, in these bearish times, it has proven to be so again.
Since the 24th June, uncertainty has dominated the markets and, in times of uncertainty, there continues to be no asset greater than gold.
Over the course of this year, the price of gold has risen by around 25 per cent. This is the highest level that gold has reached since March 2014, when it rose to $1,374.71. Prior to that, news that the US economy was gaining strength, had caused prices to retreat, although admittedly only slightly.
As the Financial Times first reported, the only people who celebrated Brexit more than anti-EU politicians were bullion dealers offering gold bars and coins. This is because companies such as these always benefit from greater amounts of volatility.
In fact, for some companies, demand for gold bullion bars reached such a level that many places sold out, meaning that they had to call on reserve collections in Germany. Retail demand for gold, particularly in the days and weeks immediately after Brexit, shows us that gold still remains a strong safe haven asset in times of financial difficulties.
Since the initial issues caused by Brexit, gold’s rise has been far less meteoric, and this is in part because we have seen the markets stabilise somewhat, particularly in America. The FTSE and the pound both saw significant losses in the week or so after Brexit, but many of these losses have since been recovered, meaning that investor confidence is beginning to return.
Plus, in July, strong economic data from America helped further fuel investor confidence. The outlook for the world’s largest economic now looks positive, especially because of strong economic employment data. This data will allow the US Federal Reserve to consider boosting interest rates. In the short term, this could potentially damage the price of gold. This is because gold is highly sensitive to interest rates, as these lift the cost of holding non-yielding assets.
As a result, although the price of gold is currently high in the post-Brexit landscape, it could soon begin to fall once more. Resultantly, it’s worth considering diversifying your portfolio and looking to the forex markets with a broker like Oanda. The price of the dollar could be set to rise if interest rates change and this way you’d be set to capitalise.
