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How Much Can Brexit Affect the Precious Metals?

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Exiting the European Union

As we talk about the economic events that are affecting gold, it’s important to consider the Brexit scenario. Many European indexes have started falling despite the strong trade balance numbers released by Germany. Investors seem to be watching what the United Kingdom finally decides. If the United Kingdom decides to leave the European Union, it may send jitters around the globe, and investors may jump to safe-haven assets such as gold and silver. Gold and silver have risen 21.2% and 25.6%, respectively, on a YTD (year-to-date) basis due strong safe-haven bids.

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Monetary policies

European market sentiment turned negative on Thursday, as European Central Bank President Mario Draghi appealed to national leaders to intensify economic reform. He feared that the Eurozone might encounter a crisis going forward and implied that there should be a robust alignment between the region’s monetary and fiscal policies.

As seen in the chart above and discussed in our previous articles, global sentiment is strongly impacting gold and has given it a bounce. One of the most crucial concerns is Brexit.

The funds that also rose on safe-haven demands include the PowerShares DB Gold Fund (DGL) and the ETFS Physical Swiss Gold Shares (SGOL). These two funds have risen 21.3% and 21%, respectively, on a YTD (year-to-date) basis. The miners that have benefited from safe-haven bids include Sibanye Gold (SBGL), Newmont Mining (NEM), and Agnico Eagle Mines (AEM). These three stocks have risen 95.4%, 95.3%, and 90%, respectively, on a YTD basis. Combined, these three miners make up 12.7% of the VanEck Vectors Gold Miners ETF (GDX).

In the next part of this series, we’ll look at the effect of US economic data on gold.

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