In the hours following the Brexit result being announced, the price of gold was one of the day’s main winners as it soared by over 20%. Precious metals as a whole all had a successful time as they increased in value, due to the UK voting to leave the EU.
The markets have calmed down a little since those crazy first few hours and days, but the price for many precious metals still remains relatively high, especially compared to pre-Brexit levels. There are a number of reasons as to why this price hike occurred, that can be used in predicting future price changes.
The Safe Choice
Buying gold is traditionally a safe haven option for many traders and investors when market risk is significantly ramped up. Once a sense of panic set in as the result was confirmed, many took their financial investments in stocks, shares, bonds and more and moved them over to precious metals.
For many the aim will have been to move it over for the short term until the markets have returned to normal and are more predictable. Uncertainty in the markets always leads to precious metal boosts, specifically in gold as it provides better returns on investment than any other risky options during such times.
An Unexpected Result
The Brexit result was also unexpected by most people, which led to fewer investors buying into precious metals as a safety option before the referendum. Instead, many were happy to keep their stocks and other investments where they were, until the relatively shock announcement that the UK had voted to leave the EU came through.
Due to many investors expecting the UK to remain, they were caught off guard and ended up buying into gold and other precious metals as soon as the result was announced. This is one reason the price jumped up by so much so quickly.
Silver’s Surprise
While gold was the precious metal most were focusing on, it was actually silver that experienced the biggest gains in reaction to the Brexit. Gold was always predicted to do well as a popular safe haven, but silver surpassed all expectations.
It was up 45% in dollar terms and 65% in sterling, reaching its highest level in two years. Safe haven demand, the US Federal Reserve not expected to raise rates and the Bank of England and European Central Bank stimuli, all worked together inadvertently to create the rally. Plus, lower interest rates reduced the opportunity cost of holding such precious metals, making it a more attractive prospect.
What Next?
Some investors may have just bought into precious metals as a short-term, safe haven choice, with the intention of selling sooner rather than later. However, other investors believe the rise in price has legs and will last into the future.
With the fallout from the Brexit yet to fully take place, a lot of uncertainty surrounding the markets remains. Gold and silver have both been on an upward trend this year too, with the Brexit representing a sharp rise that may well level off. Precious metals look set to soar in value again once Britain actually leaving the EU gets underway.
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