World Gold Council Report: Brexit Will Be Good for Gold

In a report released in the wake of the Brexit vote, the World Gold Council predicted “strong and sustained inflows into the gold market.”

In the immediate aftermath of the referendum, gold surged, reaching as high as $1,358.54 per ounce before falling back later in the day Friday. It was the highest level for gold since 2014. As World Gold Council analysts put it, gold did exactly what it was supposed to do:

Gold is fulfilling its classic role as a safe haven asset and performing exactly as the many investors that bought it in the run up to the referendum will have hoped. We expect to see strong and sustained inflows into the gold market driven by the intense market uncertainty that now faces the global markets.”

In fact, the sale of physical gold in the UK was brisk in the weeks leading up to the vote. The World Gold Council said it expects that trend to continue and even accelerate:

Purchases of gold coins by small retail investors, which were already up sharply in the months running up to the vote, should accelerate further.”

Central bank policy in the wake of Brexit will likely put even more upward pressure on gold. Many analysts think the vote will push back any Federal Reserve rate hike even further into the future, and European central banks could respond by plunging rates even further into negative territory:

As well as market uncertainty, gold is supported by monetary policy actions. If central banks are forced to implement supportive measures they will likely come in the form of further extraordinary actions, new rate cuts or delays in planned hikes. Worse-than-expected US labor market data and a downgrading in economic growth forecasts in June had already seen expectations of a US Federal Reserve interest rate hike pushed out to the end of the year. Britain’s departure from the European Union will likely push expectations out even further. And some central banks may push interest rates further into negative territory, increasing the investment challenges for buy and hold investors like pension funds. Indeed, today’s news could see an entirely new class of gold investor emerge.”

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The World Gold Council reported that the Swiss National Bank has already intervened in currency markets to stop appreciation of the Swiss franc, pointing out that gold does not carry any intervention risk.

While it remains unclear how Brexit will play out and what impact it will ultimately have on the world economy, but the World Gold Council report makes it pretty clear the UK’s exit from the EU is going to be good for gold:

As a high quality, liquid asset, we believe gold will provide investors with a hedge against market uncertainty, economic, political and intervention risk.”

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