It’s been almost one month to the day since Britons cast their votes with some of the highest turnout rates in British history, opting to leave the European Union in favor of a more independently-minded British future. The move rattled stock markets, shook the political landscape, and sent precious metal prices surging. Now that the world has had time to reflect, what does the situation look like one month after Brexit?
A Shaky Political Landscape
Arguably the most disruptive impact of Brexit has been confined to the political landscape. In the wake of the vote to leave the EU, Conservative Party leader and Prime Minister David Cameron announced his intention to resign the post as the political leader of Britain. Initially Cameron said that he would wait for the next election cycle to occur in October, and made it clear that he would leave it to his successor to trigger Article 50 of the European Union constitution to initiate exit negotiations.
Fast forward a few weeks, and Cameron announced that he would leave the position effective immediately. Within five days he was replaced by Theresa May, the former Home Secretary of the United Kingdom, and the next highest ranking member of the Conservative Party. Many of the leading members of the Leave Campaign have back tracked on their support of the Leave initiative.
May, a Remain supporter, said that as Prime Minister she would still trigger Article 50 to ensure that the will of the majority of UK citizens was followed. The political ramifications are far from over. Scotland is still considering its options, with the majority of Scottish citizens opting to remain in the EU casting a Remain vote.
Across the Irish Sea, a more interesting scenario is playing out in the shadows. The only land border between the EU and UK exists along the 300-mile border between the Republic of Ireland and Northern Ireland. In the wake of the Brexit vote and seemingly unstoppable move toward a real Brexit, rumbles are increasing among minority Catholics in Northern Ireland (and not being denounced by majority Protestants) to hold a reunification vote to create a united Ireland.
Brexit and the Markets
By in large, global stock markets have settled after a jittery week following the Brexit vote. The Dow Jones in the US has returned to record high territory after a bumpy ride, with most other major stock exchanges following suit. However, there is one market that remains extremely damaged by the Brexit vote.
London’s real estate market, considered a sure bet over the past 20 years, has seen an exodus of value and money over the past month. In the wake of the vote, real estate investors in London flooded property groups with redemption requests, forcing retail investors to freeze more than 18 billion in property funds in London. Where’s this money going instead?
Brexit and Gold Prices
Most analysts expected a Leave vote to trigger a run on gold and silver, but few if any could have imagined the full extent of the vote. In the first two weeks alone following the Brexit vote, the Royal Mint (Britain’s sovereign mint) saw a 7-fold increase in the sale of 100-gram gold bars, which cost $4,400 each.
Further, the number of first-time gold buyers in the United Kingdom alone rose by 170 percent in the final week of June and first week of July. More shockingly, Britons are pouring more of their net wealth into gold than ever before. Previously, according to Joshua Saul (CEO of The Pure Gold Company), Britons are investing an average of 40 to 50% of their net wealth in precious metals at the moment, compared to just 5 to 10% in the past.
If faith in the stock markets has rebounded globally, the drop in the London real estate market and the falling Pound Sterling are proving enough to shake Britons to their core. According to the Royal Mint, the panic in Britain may go on for quite some time. Given the Pound’s position as a global reserve currency, Britain has long been a lukewarm market for gold.
However, in the wake of Brexit and the Pound Sterling’s decline in value, interest is heating up. Previous periods of increased interest in 2008 following the subprime crisis and the European debt crises of 2012 and 2013 were short lived. The Royal Mint doesn’t see such a short lifeline for this current surge in demand.
In fact, a recent survey over a two-week period in July found that analysts and traders predicted an average forecast price for gold at $1,280 per ounce through the end of the year, up from $1,209 in April and 15% higher than the same poll at the start of 2016.
Brexit and Silver Prices
With so much attention on gold in the news, the massive gains of silver slipped under the radar for some. After the results of the Brexit vote were announced, gold prices soard 7%, but silver soared as much as 14.3%, with a brief flirtation at 17%. By Friday, July 8, silver closed the trading day at $20.32 per ounce. Some analysts believe silver could soar as high as $26 per ounce in the coming months.
However, silver’s run isn’t expected to enjoy the same legs as that of the gold run. According to Bob Iaccino of Path Trading Partners, silver’s potential differs from gold in that its liquidity is less than that of gold. There isn’t as much liquidity to silver, which exposes it to more volatile swings in prices. Iaccino sees silver dropping to around $18.05 per ounce, at which point investors would likely flock back to silver.
If you’re interested in throwing your hat in the ring, JM Bullion customer service associates are available to help you purchase gold and silver coins or bars. Give us a call at 800-276-6508.