The Wall Street Journal: Britons Seek Brexit Haven in Gold Market

Wall Street Journal
Gold, which has never been more expensive in terms of sterling, has been a hedge against the risk of a messy divorce from the EU

By Joe Wallace

Gold, which has never been more expensive in terms of sterling, has been a hedge against the risk of a messy divorce from the EU

As Brexit upends U.K. politics and hammers the pound, some Britons are searching for a haven—and the chance to make a quick buck—in the gold market.

Gold prices have soared world-wide in 2019, lifted by falling interest rates, worries of a global recession, and instability in Hong Kong and the Middle East. In the U.K., where the narrow streets of the City of London sit above one of the world’s biggest hoards of bullion, Brexit uncertainty has injected further vim into the market.

In terms of sterling, gold is more expensive than it has ever been.

Duncan Brown, a former salesperson at a global hedge fund, owns gold in an account with Glint Pay Ltd., a startup that recently expanded into the U.S. It started as a bit of fun: With Glint, customers can buy their morning coffee in exchange for a fraction of an ounce of bullion.

But Mr. Brown also owns gold to guard against the possibility of a no-deal Brexit, which would sever almost half a century of economic and political integration with the European Union at a stroke. This could lead to shortages of fuel and medicine, long traffic jams at ports and civic unrest, the U.K. government said this week, outlining a “reasonable worst-case scenario.

“As sterling goes down and demand for gold goes up, you’re winning on both fronts,” Mr. Brown said. “It’s sensible to have some sort of hedge in place, so you don’t get collared by sterling.”

Gold prices typically rise in terms of the U.K. currency when the pound weakens against the dollar, making the precious metal a hedge against the risk of a disorderly break with the EU. In early September, shortly after Prime Minister Boris Johnson came to power with a “do or die” pledge to leave the bloc by Oct. 31, sterling sank to a 34-year low of $1.20 and gold hit an all-time high of £1,278.06 ($1,576.06) a troy ounce, according to the London Bullion Market Association.

The pound has since staged a recovery and gold prices have tailed off, after members of Parliament took steps to prevent Mr. Johnson from taking the U.K. out of the EU without a deal.

Joshua Saul, founder of the Pure Gold Co., a brokerage, receives lots of inquiries from bankers and investors who want to buy gold with their own money. One London-based fund manager at a large asset manager said she and some of her colleagues have bought the precious metal because they expect the pound to fall further.

Financial professionals aren’t the only people who see gold as a way to defend their savings at a time of political and economic uncertainty in the U.K. and abroad. Robert Toogood, a retired clergyman from Hampshire in southern England who now writes books on history and religion, bought gold for the first time over the summer because he “felt there was such volatility with Brexit and China versus America” and sees gold as a universal currency.

“My wife is younger than me and is still working and really I’m thinking I’ve got to do something, all I can, to make sure that she’s got enough to live on when I meet the previous vicars of Bramley,” Mr. Toogood said, referring to his final parish. Mr. Toogood bought his gold through U.K. company BullionVault Ltd., which pays security firms to keep customers’ bullion safe.

In the U.K., there are perks to holding certain kinds of gold coins struck by the Royal Mint, a government-owned company. Sovereigns—first minted in 1489 and which now bear the face of Queen Elizabeth II—and Britannias are often bought as investments, but they can technically be used as legal tender, making them exempt from capital-gains tax.

In 2015, demand for the Royal Mint’s Sovereign coins surged from Greeks who were spooked by the country’s debt crisis and yanking money out of their deposit accounts, even though the tax exemption only applies to U.K. residents.

Rob Halliday-Stein, founder of BullionbyPost, said the two coins are the company’s most popular items and that August was the U.K. company’s best-ever month. He describes his customers as mostly male and sharing a “mistrust of financial institutions, of ‘the system.’”

Some amateur traders regularly buy and sell, treating Brexit as a chance to cash in on day-to-day moves in sterling and gold prices. As the government clashed with opposition members of Parliament earlier this month, IT consultant Chris Hall traded gold with the BullionVault app on his mobile phone while watching the fiery debates unfold in the House of Commons.

“It’s a horrible thing to say, but when the pound’s falling, you think to yourself now’s the time to buy gold,” said Mr. Hall, who is from Herefordshire on the England-Wales border. “When Boris lost his couple of votes, it was a great time to buy it as long as you were on your toes.”

Source: The Wall Street Journal