When the UK held its referendum on whether or not to leave the European Union back in June, the result came as some surprise to many people (including then Prime Minister David Cameron). While the public voted to leave the EU, the question that was asked of them was simply that, and there was no clear plan in place for what a Brexit would actually look like, how it would be implemented, or the shape of trade between the UK and the rest of the world once they devolved from the union.
Experts in the commodities markets cite both Brexit and the uncertainty surrounding it as the primary reason why silver was the top performing commodity seeing some dramatic rises in 2016, and gold also performed well.
These effects have carried over into 2017 already, with precious metals seeing surges in advance of Theresa May’s recent speech which sought to answer some of the questions around what form of Brexit her government is going to opt for. May announced that the UK would be going for what has been dubbed a ‘hard Brexit’ – that is, Britain would leave both the EU, and the European single market. As a result of this, the pound actually rose significantly, which is largely being attributed to renewed confidence in the British currency now that a plan of action has been confirmed. The FTSE 100, however, feels weaker as the dollar earning businesses on the index struggled with the strength of sterling.
Prior to the speech, however, precious metals saw rises, with gold going up 1% in the days prior to the highly anticipated speech.
Brexit may have had a significant impact on precious metal prices, however the fact that Theresa May’s speech came just days before the inauguration of president elect Donald Trump in the US added even more uncertainty to the markets, with many analysts concerned that the Trump administration will be strongly protectionist.
In times of uncertainty and volatility, precious metals have always been seen as ‘safe haven’ investments, and this is why gold performed at its very best during the global financial crisis in 2007. Investment in gold at that time was so high that prices rose to $1,900 per ounce, which, when you consider that currently, a rise above $1,200 per ounce is seen as outstanding, shows just how keen traders were to put their money in gold in what was by far the most financially volatile period in generations.
Some analysts and commodities market experts predict that with many people fearing house price slumps in the UK, US and Europe, and having concerns about investing in stocks and currencies with so much political uncertainty, gold and silver could once again see the kind of highs it saw during the worst parts of the economic crash. However, much of that will depend on whether their predictions about how Trump will manage money and what the knock on effects of Brexit will be are correct.
In any case, the events on both sides of the Atlantic have seen investments in things that are not tied to stocks or currencies like precious metals and even Bitcoin surge, and these are going to be watched very closely by anyone concerned with the markets in the coming weeks.
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