Is ‘no-deal’ brexit a good deal for gold?

Goldex Team

Editorial content

Whether you’re a leaver, a remainer, a People’s Vote champion or a no-deal advocate, chances are you’ll have looked again at your investments as March 29 approaches. And many investors believe that gold is a wise buy right now – whatever kind of Brexit we wake up to on March 30. How will Brexit impact on gold prices?

Several predictions have 2019 as the year gold prices go high and stay high. E.B. Tucker, director of Metalla Royalty & Streaming, predicts $1,500. “It’ll be one of the best performing markets in a very, very volatile year for equities,” he told Kitco.com. InvestingHaven.com predicts even higher than that – a 20 % probability of $1550 in 2019, but only if it breaks through the $1375 barrier.

And INTL FCStone’s Edward Meir told the Monthly Market Overview report he believed that gold will have a better year than 2018. His prediction: gold will trade roughly between $1,200-$1,400 per ounce, with the price picking up in February as Brexit uncertainties start to bite. 

 

No deal = good deal for gold?

Take the No Deal scenario. If companies can’t buy and sell, the British economy is suddenly far less investable. As an investment advisor, Arkadiusz Sieron writes on Kitco.com. “The exit is likely to be disorderly. The price of gold expressed in British pounds should rise then.”

As the pound gets weaker, investors will remember that gold is a reliable choice (just as it has been for hundreds of years). That means more people will suddenly be buying, increasing demand and pushing the price of gold up. (The last ‘gold rush’ of this kind was just after the results of the 2016 referendum came in.)

No Deal could also lead to ‘stagflation’, some experts have warned, which would be good news for gold prices. “Businesses will stall on capital investment projects and we could see UK economic growth slow and unemployment rise with inflation persisting – the ingredients for stagflation,” David Coombs, head of multi-assets at investment house Rathbones, recently told the Mail on Sunday. “If that happens, gold will represent a store of value.”

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Calm before the storm

Theresa May’s proposed deal initially seemed dead in the water following its historically huge defeat. Yet it may well return and pass with some modifications, possibly meaning a hard Brexit – no freedom of movement or access to the single market.

Will gold prices rise after Brexit? Again, there’s plenty of uncertainty around how this kind of deal might play out, which has been reflected in gold price movement in the past. When May’s proposals were rubbished at the Salzburg summit in September 2018, gold shot from £901 to £915 per ounce, then £930 per ounce over the next few days.

But unlike the political situation, gold prices have remained relatively stable since the beginning of January. They have hovered around the six-month high of $1,298.42 on January 4, but never breaking the $1,300 barrier, despite May’s defeat and the subsequent vote of no-confidence, which the government won.

“Political uncertainty remains and that does not seem enough to push gold past $1,300,” Commerzbank analyst Carsten Fritsch told CNBC. But he added demand for gold coins in the UK is picking up thanks to Brexit uncertainty.

And despite Brexit being only a few weeks away, investors are still prepared to watch and wait. Jasper Lawler, head of research at London Capital Group, told Kitco.com that the deal vote wasn’t a surprise, hence the lack of movement on gold markets. “The surprise will be if the vote passes; then we will be in uncharted territory and that will be good for gold. You need people to be really worried before gold takes off.”

 

Future Corbynomics

Thinking longer-term (or a few weeks ahead: who can say?), a change of government is also a possible Brexit (or no-Brexit) outcome. Smart people are already hedging against Prime Minister Jeremy Corbyn’s likely policies of higher taxes on income, corporations and dividends, and a consequent fall in sterling.

Gold has, after all, traditionally been a safe haven in uncertain times. Nobody knows what’s coming – perhaps, even, no Brexit at all. Stranger things have happened, and these are strange times. But there’s no harm in taking a lesson from the Scouts and being prepared. And experts agree: gold is a great way to do it.

 

 

Important disclaimer: this document is not an official research report and the views expressed in it are those of the authors. The authors are not registered research analysts and there is no assurance the trends mentioned will continue or that the forecasts discussed will be realised. Gold as a commodity is not a specified investment for the purpose of giving advice under the Financial Services and Markets Act 2000, therefore, this it does not give rise to rights to claim compensation under the Financial Services Compensation Scheme.

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