The UK is voting whether to exit or not from the European Union, which will almost certainly have an effect on the global economy. The impending vote, also known as “Brexit” – for British Exit – has markets on edge, and even more so if “Brexit” successfully passes. One commodity that is predicted to change dramatically is gold. From what markets are already predicting, if “Brexit” passes, gold could be pushed to $1400!
Gold as the Winner
Gold could in fact be the big winner of this referendum. According to the Wall Street Journal, if the referendum to end the country’s membership in the European Union passes, gold could rally as much as 10%. Why ? Britain’s consideration to leave the EU could signal weakness in the markets. As Market Realist reports, once insecurity among investors springs, the price of gold is sure to rise.
In fact over the past 30 trading days, gold prices rose about 2.5%, while silver rose 5.7%. While gold and silver rallied, some big winners who followed precious metals closely include the Direxion Daily Gold Miners Fund (NUGT) which increased 14.3% and the ProShares Ultra Silver (AGQ), increasing at 11.7%.
In a discussion with the Wall Street Journal, Simon Gambarini, a precious metals expert at Capital Economics said: “A vote for Brexit could easily see the gold price surge to $1,400 an ounce.” Other analysts commented that “Brexit” could spark significant physical purchases throughout the UK, Europe, and possibly the rest of the world. Inversely, global equities and government bond yields have slipped to multiyear lows in this month alone. Other commodities such as oil and copper have also slowed a great deal
Again, the price spike in precious metals is explained by its status as a safe-haven asset. In times of extreme economic doubt and volatility, gold retains a stable value. In order to protect assets, investors largely invest in gold and other precious metals as a result. In the event of a EU exit, the UK’s economy will most likely be deemed as risky for markets, influencing larger global markets as well.
Unsurprisingly, this can surely have an effect on the American economy. The federal reserve’s plans to raise interest rates in the United States will almost certainly stall for a greater amount of time. Janet Yellen, fed chairwoman commented on how “Brexit” can provide further obstacles for the Fed’s plan to hike rates further. We can only wait and see until Thursday’s June 23rd vote.
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