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Brexit Uncertainty Pushes Up Gold Price

Gold prices enjoying their best run since the financial crisis – as political and economic uncertainty prevails

Emma Simon 26 February, 2016 | 3:30PM

Gold prices have risen at their fastest level since the financial crisis – on the back of falling sterling prices and uncertainty about the forthcoming  “Brexit” vote.

The price of gold is still significantly below the price reached in 2011 – when it was trading at $1920 an ounce. In early trading on February 26 it was priced at $1233.10 per ounce.

But since the start of the year gold prices have risen by 20%. This represents the fastest seven week rise since the summer of 2011, when the economy was hit by the deepening Euro crisis, the downgrading of US debt and political problem in the UK with widespread urban riots.

Adrian Ash, the head of research at BullionVault said: “Private households tend to buy investment gold when they fear a currency crisis, a stock market crash or broader financial turmoil. The Brexit referendum in June could bring all three judging by the fast-growing number of British savers switching a portion of their money into gold and silver – which has also posted strong gains recently.”

It is clear that the slump in sterling is driving a good part of gold’s gains for UK investors. But gold has also risen 16% against the dollar since the New Year and now stand 9% higher against the yen – to date the best-performing major currency of 2016.

This is a contrast to the performance of gold in the latter part of last year – where the gold spot price hit six-year lows. Ash adds: “This turnaround is coming from a marked upturn in managed money investing, clearly showing in gold-backed ETF trust holdings.

“Broader fears around China, commodity prices and the equity sell-off have led to a return in professional investor interest. But while gold tends to do well when other asset classes fall, it does best when people lose confidence in central bankers. That’s really lit a fire under gold prices worldwide.”

Younger Gold Investors

In February leading bullion dealers reported a rise in the number of new customer, higher transaction values as well as younger customers than the long-term norm.

Age is clearly a factor in the forthcoming Brexit vote. A recent YouGov suvey showed voters aged 30 and under supported continued membership of the EU by almost two to one. In contrast the over 60s were more likely to be in favour of quitting the EU, with 56% in favour of ‘out’ and 44% stating they wanted to remain in.

Gold investment is often associated with older more cautious savers. BullionVault said that among its existing UK user-base 30% were aged 60 or over. However, only 7% of new customers in February were in this age bracket and 17% were under 30. This age bracket typically accounts for just 4% of UK customers.

In addition the average number of UK users is 122% ahead of 2015’s daily average. The average amount deposited in these accounts was £8,600 – 73% larger than the previous 12-month average.

ETFs Buying Pushing Gold Prices Upwards

But it isn’t just those investing directly in gold that are benefiting from rising prices. Recent figures show that equity funds investing in precious metals have been the best performers during the recent period of market turmoil. Bakersteel Global Previous Metal, for example has returned 27% (between January 01 and February 10) compared to a 9% loss on the main UK and global indices.

Tom Stevenson, investment director for personal investing at Fidelity International said the gold price was being driven on the one hand by concerns about global risks. But there were also positive factors that were pushing prices upwards. A recent HSBC report laid out three reasons why it thinks the gold prices might be more buoyant in 2016, these include: increased demand for physical gold from emerging markets, the dollar exchange and investment demand for gold through ETFs in particular

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk