Brexit chaos sparks interest in physical gold

Investors piling in at a rate not seen since EU referendum in 2016

Individual investors have been purchasing physical gold at a rate not seen since the EU referendum in 2016, driven by escalating turmoil around a Brexit deal, according to a retail gold investment company.

The Pure Gold Company has reported a 374% increase in people investing in physical gold bars and coins this week which it said was on the back of the prospect of a no-deal Brexit and renewed fears of economic turmoil.

Prime minister Theresa May’s Cabinet was left in disarray on Thursday after two high-profile members, Dominic Raab and Esther McVey, quit in protest at the deal. May is facing a vote of no confidence from party members and an uphill struggle to get the deal through the House of Commons given the number of opposing factions.

Josh Saul, chief executive of the Pure Gold Company, said: “We’ve had people purchasing gold this week at a rate not seen since just after the Brexit referendum in 2016 when gold jumped by more than 20% while sterling crashed. We saw a similar buying trend on Thursday as the pound dropped by almost 2% while the gold price increased by over 3% in sterling terms.”

Saul said the firm has also seen this week a 268% increase in first-time physical gold buyers who are worried that Parliament won’t approve the Brexit deal.

He added: “Many of our professional clients are looking for a way of shielding their portfolio from currency and equity volatility, while others are mindful of an outright financial crash and have sought a means of removing counter-party risk. Gold is a useful hedge in times of volatility, uncertainty and fear as it increases as other asset classes fall in value.”

Hard to see how UK-EU mess can be good for other assets

Adrian Ash, head of research at online physical gold platform Bullionvault, said the platform’s trading volumes on Thursday rose 147% from the previous week’s average. In addition, investor demand net of sales jumped 598% from the prior 12-month average.  Bullionvault customers now own a record 39.1 tonnes of gold between them, he added.

Ash said: “Political turmoil won’t boost gold prices by default, but it’s hard to see how the UK-EU mess can prove good for any other assets. Gold tends to do well either when the pound slumps or investors lose money year-after-year in the stock market.”

US driving gold, not Brexit

Psigma Investment Management is not a fan of bullion but upped its exposure to gold miners earlier this year after noting the dislocation between these stocks and gold bullion was at its widest for 30 years. The firm has a 2.5% allocation to gold miners in its balanced portfolio.

However, Rory McPherson, head of investment strategy at Psigma, believes the gold price is being driven more by the dollar and flows from US investors than short-term reactions to markets or the Brexit deal.

He said: “Going into September/October, short interest in gold was the greatest it has been in 17 years. The gold stocks have done pretty well in the sell-off, so from about mid-September they started moving quite nicely, so they have been up about 10%. A big driver has been the US market shaking out a bit because previously you had lots of outflows from US retail investors from gold miners, now you have started to see inflows.

McPherson also pointed to the Barrick Randgold merger, which saw the Barrick executive chairman John Thornton pile in $25m of his own cash, as anecdotal evidence supporting the change in positive sentiment.

“These things tend to be a catalyst for a snap back, so we have seen gold start to get a bit of a bid,” he said.

 

 

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