Hard Brexit – Can Gold Investment help protect your wealth

Brexit Switch

Despite some protestations to the contrary, a hard Brexit will cause substantial turmoil, in society, companies and markets. Investing in gold can help protect your assets form the no-deal fallout.

The Brexit vote divided the UK along bitter political lines and the process, from deal to delay to no-deal and back again, has done little to bring the two sides together. Some in the Leave camp have sought to tone down fears over the economic outcomes of the split. However, the market response to each Brexit milestone, government vote, negotiation break-down or political leadership change is stark evidence that there will be a substantial impact on the UK economy. Everyone should be considering ways to protect their wealth in the event of a hard Brexit, and investing in physical gold, a well-established store of wealth, is a smart way to do that.

Free movement of people

Brexit will affect the ability of Europeans living in the UK or British Citizens living abroad from moving freely between countries. This will ultimately affect the job market, but even before Brexit officially happens, companies are having to consider their new hires and current employees. This could affect job prospects for foreign nationals at UK companies and UK nationals at companies that may need to move jobs outside the country.

There is also the possibility that some companies could lose their top talent because of the uncertainty, with the inevitable shrinking of the talent pool. Some foreign nationals in the UK have already started to plan for the Brexit outcome by buying physical gold. If the UK leaves in a disorderly manner with no deal, this could cause sterling to decline making it more expensive to relocate if employment circumstances change. The Pure Gold Company has seen a steady increase in foreign nationals buying up gold as each Brexit deadline approaches.

Price inflation

No matter how well-prepared companies are in advance of a leaving date, a no-deal Brexit will impact the price and accessibility of goods. The scale of the impact has been hotly debated, and no-one truly knows what will happen in the days and weeks that follow. However,  it is highly likely there will be some shortages or supply chain failures.

Certain costs have already increased in anticipation of Brexit which is putting huge strain on businesses that cannot increase their prices whilst remaining competitive. Meanwhile, the UK will be subject to duties and taxes previously waived, which will invariably increase the price of goods and services, perhaps most worryingly of food and medicines.

The unpredictability of the Brexit outcome is resulting in businesses restricting capital expenditure and this could contribute to a recession, which would compound the already uncertain but likely negative trade impacts of a no-deal Brexit.

Does Brexit Effect Investments

Brexit has already impacted on many investment categories, and there will more than likely be more disruption as the process rolls on. Property transactions are already being stalled in some areas because of Brexit uncertainty, and the outcome in the event of a no-deal Brexit is even bleaker. In July, the Office for Budget Responsibility said house prices could fall by almost 10% by mid-2021 in the event of a no-deal Brexit.

For most people, property is their largest asset, and a substantial devaluation or property crash could have a profound effect on homeowners. Some people have chosen an extreme way to protect their property assets by selling up now, putting the proceeds into gold bullion to protect it from stock market and currency fluctuations, and then intend to liquidate and buy into the property market when prices are lower.

Stock Market reaction to No-deal Brexit

The stock market has already shown how it is likely to react to a no-deal Brexit. Each time a deal is voted down in parliament or the prime minister forces a government shutdown, stocks slide. There are so many large and mid-sized companies reliant on overseas markets for sales, or on European companies for parts or produce.

There will inevitably be a substantial impact on stocks if the UK leaves the EU without any trade deal in place. This may also create a more general economic decline leading to a recession, which would extend and intensify the impact on stock and bond market investments. It will also inevitably hit pensioner’s or pre-retiree pension pots, reducing the stock markets appeal and increasing the effect of any downturn.

The signs of economic stress are already obvious. The UK high street is under severe pressure, with mass store closures and multiple insolvencies. There was some relief that July GDP figures showed some growth (0.3%) but the Office for National Statistics still warned that the services sector, the largest contributor to UK GDP, remained weak.

Gold investment is a well-established way to protect your assets from a downturn or recession. For centuries, Gold has held its value, and in almost every downturn has in fact increased as more people flock to the safe-haven precious metal. Owning gold mining stocks won’t protect your investment from stock market fluctuations entirely though, and gold ETFs come with counter-party risk. Physical gold eliminates counter-party and stock market risk and provides pure exposure to the value of gold.

How might a hard-Brexit Effect Currency Markets?

The pound has already been on a downward slide as each attempt to broker a Brexit deal has ebbed away. Because gold is priced in US dollars, when the UK pound falls against the dollar,  gold costs more in sterling terms. When the Brexit result was announced in 2016 gold prices rose almost 22% in sterling terms but only 6.3% in dollar terms.

If the UK crashed out of the EU without a deal, the pound is likely to fall, sending the gold price in sterling terms up. In this way, gold bullion can be used as a currency hedge to protect against the falling pound.

When the referendum result was announced, it didn’t seem likely or even possible to leave the EU without a deal, and every political effort has been put towards securing something acceptable to all people. But that possibility becomes more probable the longer the deadlock remains, and everyone should be preparing for it. Investing in gold is a good place to start.

Brexit Switch

"Everyone should be considering ways to protect their wealth in the event of a hard Brexit, and investing in physical gold, a well-established store of wealth, is a smart way to do that."

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