As the historic Brexit vote drew closer, we saw the “safe haven investment” gold becoming increasingly popular, rising steadily in price. Experts and analysts predicted that if the “Leave” vote was a in the majority, this could only mean more good news for gold. Guess what? They were right.
Hedge funds got it right
In the two days before the U.K vote, hedge funds increased their bets on price gains for gold to all-time highs. Money managers heightened their net-long position in gold futures and options by 6.7 to 256,898 contracts in the week ended June 21, according to the U.S. Commodity Futures Trading Commission data says Bloomberg.The previous record, set in August 2011, was 253,653—a month before gold future reached $1,923.70, the highest ever.
Gold’s’ response to Brexit
Most investors were shocked at the vote results. This ignited panic on the trading floors and prompting British Prime Minister David Cameron to resign. Gold prices, on the other hand, rose this past Friday, June 24th, by the most since the 2008 financial crisis and the biggest increase of any major global asset.
This directly followed Britain’s decision to leave the European Union. In the peak of uncertainty, gold is considered a safe investment and a reliable hedge. It is expected that the future prices of gold will only continue to rise as the financial markets dramatically shift as a result to the Brexit vote.
Gold climbed as high as 8.1% in London’s spot gold market, the largest in the world, to nearly $1,359 an ounce early Friday, before settling at $1,317 an ounce by 10:30 a.m. EST. The prices have already risen a record-breaking 20% this year since the first inklings of a global economic slowdown and a stronger U.S. dollar. A Bloomberg survey showed that prices could rise another 7.7 by the end of the year.
A median of 12 forecasts in the survey of analysts and traders from New York to London indicate that prices could reach as high as $1,424 by the end of this year, the highest since August 2013.
Living up to the hype
The sudden surge following the vote indicates that gold has thus far lived up to its role as a financial refuge. Adrian Day, president of Adrian Day Asset Management in Annapolis, Maryland, which oversees $165 million says, the U.K. vote:
“Is a fundamental change, and we could see the fallout go on for quite a while. There’s a lot of uncertainty and conflict there, and uncertainty and conflict are good for gold.”
Actions in the UK all but reflected this. In London more than 23.5 million British pounds in vaulted gold and silver were traded on the online gold trading platform BullionVault, more than two weeks’ worth of the average trading in 2015. At the same time, the platforms’ new account openings were twice the daily average by 11 a.m. local time in London, reports the Telegraph UK.