The risk of Brexit has pushed up the price of gold, with every tightening of the bookmakers’ odds giving a boost to the value of the precious metal.
The price of bullion is up 21 per cent so far this year, 8 per cent of which has come in the last month.
Gold prices reached a three-year high last Thursday of $1,315 (£894) per ounce, although it has since fallen as latest polls indicate the greater prospect of a remain vote – showing how close the relationship between potential Brexit and the gold price has become.
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It’s a classic case of investors looking for a “safe haven”, as gold prices always rise around an economic crisis – in recent years the Greek debt saga has provided many examples of this.
In the case of Brexit, there’s the possibility that many other UK assets will fall massively in value. This increases the attractions of gold as a place to store wealth.
“Analysts and traders agree that Brexit would likely dent the pound, the stock market, UK government gilts and house prices, and dent them much more severely than a vote to remain would boost them,” says Adrian Ash of online gold market BullionVault.
Running in tandem with gold’s price rise has been a continually weakening pound. A year ago, £1 was worth $1.58 but is now only buying $1.49 – a fall of 5 per cent. “For UK gold investors, the sharply weakening currency is proving fantastic… In short, gold provides an easy escape from a declining currency,” says Ross Norman of bullion broker Sharps Pixley.
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The fear of the UK voting for a leap into the unknown is such that some experts are predicting large jumps in gold demand.
“A vote for Brexit could easily mean the gold price surges to $1,400 per ounce by the end of the month,” says Julian Jessop of macroeconomic research firm Capital Economics.
However, it’s unlikely any effect on gold will be sustained, says Jessop. “The UK is likely to remain a member of the EU for at least another two years and perhaps much longer. This should allow time for negotiations to clear up some of the uncertainties about the economic impact,” he argues.
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Moreover, the government’s pro-remain stance means they have a vested interest in talking up the risks of a Brexit, which has boosted gold prices. Presumably, a leave vote would mean the government shifts towards reassuring businesses and investors, and conversely this may have the effect of talking investors out of gold.
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