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Brexit and the Gold Price

Thursday, July 19, 2018

If you’ve been paying any attention to the gold price over the last few months, you’d probably be pretty disappointed. Not because gold is performing badly, per se, but because it’s not really doing much of anything at all.

At this point, a cursory glance at a gold price chart might convince the average investor or speculator to cash in their gold supplies and call it a day. But despite the lack of any tangible change in the gold price for some weeks, we think that’d be a pretty short sighted conclusion.

In fact, this period of low volatility might just work out in favour of those who buy gold bullion, bars and coins. Here’s why.

Gold price volatility

Back at the height of the Kim Jong-Un and Donald Trump ‘to summit or not to summit’ drama, we wrote about the changing effects of geopolitics on the gold price. We’re living in one of the most politically volatile periods in most people’s living memory – so you’d expect gold to be making headlines everywhere.

The last time the gold price rose significantly in value was after the 2016 Brexit referendum. It settled over the coming months and has been largely steady for what is now the best part of a year. There was some brief action in December at the conclusion of stage 1 negotiations, then back once again to the new status quo.

As much as we’re all tired of hearing about it, Brexit remains the political and economic issue of the day. For over two years now, we’ve braced ourselves for what will be, for better or worse, a totemic turning point in our political and economic history. Until we get a clearer picture of where the country’s heading after 2019, gold is likely to remain exactly where it is.

A weekend at Chequers

Last weekend saw the revelation of what, for the first time, actually seems to resemble a plan. The last two years has been full of dithering aplenty from both the government and the opposition. Whatever your views on this deal (and passions are certainly running high), it’s certainly nice to finally get some clarity.

As more clarity emerges from the Brexit negotiations, we’d expect the gold price to steadily start to get moving again. In reality, we still don’t know whether Brexit will end up being an economic disaster, or whether we’ll basically be okay.

If we get a reasonable deal and everyone moves on with their lives, there’s a good chance that gold will return to pre-2016 levels of volatility. If, as is very possible, the deal is rejected by either parliament or the EU, we could well be looking at profound economic distress for the UK in a short space of time. And nothing makes the gold price rise like economic distress.

Whichever way we head, the Brexit deadlock is loosening. There’s a good chance that gold will soon move back to volatility levels that we haven’t seen for over a year. And when it does, you’re going to want to be ready.

Gold vs. shares

Investors who put most of their portfolio in stocks and shares have a tendency to look onto precious metals with scepticism. And when gold flatlines, it’s difficult to argue. You’re not going to make large returns day trading with gold. You’re probably not going to make Bitcoin style fortunes with gold any time soon. But plenty of stock market investors insist on having a chunk of their portfolio in gold – whatever the current trading gold price.

Gold remains a popular investment commodity, not because you’re going to make big returns on it tomorrow – but because it’s a reliable hedge. When the price of your cash currency, stocks or real estate assets plummet, you can nearly always rely on gold to move in the opposite direction.

Today, gold remains cheaper than it was at the height of the initial Brexit hysteria, and there’s a good chance it’ll rise again as the situation develops. If ever there was a good time to get some gold for the rainy day fund, this would be it.

Buy gold bullion and postal bullion right here.