Going for gold ahead of EU referendum

Going for gold ahead of EU referendum

Gold has started to regain some of its shine as UK investors hedge their portfolios ahead of the UK’s EU referendum vote on 23 June.

According to data from online trading analysts IG and Bullion Vault, there has been a significant upswing in investor activity around gold in recent weeks.

As of 10 June 2016, the gold price stood at $1,270.4, (£898) a 7.21 per cent increase year on year, and a marked increase on October 2015, when it was trading in a range around $1,050 (£743).

Adrian Ash, BullionVault’s head of research, said part of the reason why gold was making a comeback was because people were worried about a potential shock to their savings in the event of a Brexit vote.

Mr Ash said: “Analysts agree 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.

“This asymmetric risk also faces Eurozone assets too, because Brexit would hurt the wider EU.

“Gold trades freely against all major currencies in a global market. While nothing is certain, gold may well rise against all currencies on a Brexit shock.”

He pointed to the past five historic shocks to financial markets, such as the Yom Kippur War of 1973, where gold suddenly gained in global popularity.

Until 6 October 1973, it had been trading around £40 per ounce.

Gold, which had been falling during the 1980s, got a filip on 19 October 1987, Black Monday, reaching a near a 12-month high at £286 per ounce, a level not seen again until 2005.

Mr Ash said: “Gold priced in sterling has risen by an average of 2 per cent on the morning of each stock market shock, on average, and a further 1.4 per cent on average in the afternoon.

“Over the following week, gold has risen another 3.6 per cent on average for UK investors, offering a solid counterweight to the shock drop in sterling, shares and other assets.

“Nothing about the EU referendum is certain, and gold isn’t guaranteed to rise amid what could prove a high-risk event. But a growing number of UK investors aren’t waiting for the result to buy some gold as insurance.”

His comments were echoed by Joshua Mahony, market analyst at IG, who said investors were concerned about risk in the markets ahead of the vote.

Mr Mahony said: “With Treasury yields hitting all-time lows, Gold rallying sharply and the riskier equities selling off, it is clearly a case of risk-off for financial markets.

“It is clear there has been a big shift in sentiment around the Brexit over the past 10 days. Unless polls begin to show an overwhelming bias towards ‘remain’ it is likely the next two weeks will be characterised by uncertainly and risk aversion.”

In a poll conducted by FTAdviser Advantage, on the @FTA_Advantage Twitter feed, readers’ opinion was divided as to whether gold or the UK stock market might be the best performer on the morning of 24 June, when the result of the vote will be known.