International Adviser: Massive surge in gold demand ahead of Brexit vote?

The associated feature
Don't Panic

The Pure Gold Company


By Kirsten Hastings

The pound has wobbled but shows little sign of a repeat of June 2016

The chief executive of a gold and silver investment company has reported a strong surge in demand from investors for physical gold, “as it was announced that Theresa May’s Brexit deal succumbed to the largest defeat for a sitting government in history”.

Josh Saul, who heads up The Pure Gold Company, said the firm saw a 173% increase in enquires on 15 January, the day the House of Commons voted on the EU withdrawal agreement, compared to its 12-month average.

“We remained open until 10pm [on 15 January], taking orders from panic-stricken investors, as many of them expressed concern over the prospect of either a general election and/or the UK leaving the EU without a deal and the effect this will have on our economy.”

Over the course of the seven days before the vote, the company reported an astonishing 324% increase in enquiries when compared with the average across the past year.

Interestingly, Saul said that 63% of the clients investing in physical gold over the past week had also bought gold in June 2016 – when the Brexit referendum result was announced.

“Back then, sterling crashed and the gold price jumped by more than 23% in 24 hours,” he explained.

Mixed views

These figures, however, were questioned by Ross Norman, chief executive of London-based bullion brokers Sharps Pixley.

“The fall in sterling has meant that gold in GBP has risen by 8% in just two months, which might have precipitated a self-fuelling rally as UK investors rushed to protect their savings … but they haven’t.

“The rise in gold in GBP has instead seen a rush this morning of investors coming to Sharps Pixley to take profit and selling into the price strength – and not panic buy as you might have imagined,” Norman said.

Similarly, Adrian Ash, director of research at BullionVault said that “selling continues to outweight demand, with profit-taking led by UK and Euro investors”.

He said the firm saw strong trading volumes of £1.9m on Tuesday, up 94.1% from the 12-month daily average.

“Gross demand was up 57% from the 12-month daily average, but gross selling was up 124.7%, so overall we saw net disinvestment of 11.8kg worth some £379,000.”

Ash added: “Gold over £1,000 and €1,100 is finding heavy demand but heavier profit-taking by customers who first bought after gold hit multi-year lows at the end of 2015.”

How has the pound performed?

The views of Norman and Ash are supported by the reaction of the pound, which rose against the US dollar and the euro despite the government suffering an overwhelming defeat.

As evidenced in the charts below, the pound experienced a rapid drop against both currencies in July 2016 but appears to have weathered any current storms.

Admittedly, this may have been as a result of the widely anticipated result – unlike Brexit, which caught a significant proportion of the country by surprise.

As of 4pm on 16 January – three hours before Theresa May’s government faces a vote of confidence in parliament – the pound was trading at $1.286 and €1.1285.

Uncertainty, volatility and retirement

Investors expressed a number of concerns to The Pure Gold Company, beyond the Brexit vote, that were prompting them to consider investing in a physical commodity.

The vote of no confidence and the prospect of Jeremy Corbyn as prime minister were among them.

Additionally, the UK opting to remain in the EU triggering considerable divisions across the country was a concern, especially the possibility of violent protests.

“Since the beginning of 2019, we’ve had a 71% increase in the amount of people removing exposure to equities within their pension/Sipp to purchase gold within the same vehicle, compared to the average in 2018,” Saul added.

“Many of our clients expect that, this year, we will continue to see global equities fall in value, reducing their retirement pots.

“While Brexit is foremost in their minds, our clients are also increasingly worried about a wider economic downturn, presaged by the difficulties on the UK high street with company administrations and store closures, trade wars between China and the USA, and Donald Trump’s volatile behaviour in pursuit of a Mexican border wall.

“Our clients are not purchasing gold for growth, it’s more about safety and security in the event of market failure. The trend is simple – as most asset classes fall in value, gold tends to increase and for this reason people purchase the yellow metal in anticipation that equities and property prices continue to be volatile.”

Source: International Adviser


Don't Panic

"Investors expressed a number of concerns to The Pure Gold Company, beyond the Brexit vote, that were prompting them to consider investing in a physical commodity."

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