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What Is Brexit Doing To The Price Of Gold?

Unless you have been under a rock for the last several years, you have heard about the United Kingdom leaving the European Union. This has commonly become known as "Brexit" or a combination of the two words "British" and "Exit". It was a historic vote that took place in the summer of 2016 and has had politicians throughout Europe scrambling to figure out what the exact plan will be for the country to leave the long-standing European partnership.

Brexit has added a lot of uncertainty to financial markets and political futures. Much of this has been discussed extensively in the press, but there is one area that doesn't get as much coverage. That is how this whole fiasco could impact the price of gold. What is gold selling for and how might these latest developments impact that? We want to take a look at those questions now.

What Influences Gold Prices In General?

Before we can break down the exact impact of Brexit on gold we must first understand what impacts the price of gold to begin with. Most of us have a basic understanding of how the price of a stock moves up or down based on the performance of the underlying company, but what makes gold move?

The answer to this is multi-faceted. Let's take a look at a list of things known to have an impact:

  1. Supply And Demand Of Gold
  2. Uncertainty In The Markets (The Fear Trade)
  3. Interest Rate Adjustments By World Banks
  4. Inflation
  5. ETF Trading (Speculation)

This list is not comprehensive, but it gives you an idea of what can make the price of gold move to and fro. The most obvious part is the supply and demand for gold. This is how the price of almost anything is decided. Still, it is important to factor this in. Our second bullet point is what is having the largest sway in how Brexit is making an impact (more on that shortly).

The third point is something that the average person on the street is not going to know about. Banks around the world adjust interest rates on currencies all the time. When they move them in a direction that makes markets fearful, the price of gold can begin to rise.

General inflation is another reason why gold may rise in value. This is closely tied to the interest rate changes that a world bank makes. Finally, ETF trading or speculation in gold markets can also make prices rise or fall. It has become a lot easier in recent years to invest or speculate on the price of gold. Exchange-traded funds (ETFs) mean that even the average person can put money into or pull money out of gold.

What Will Brexit Do To Gold?

There is not a definitive answer that anyone can give on this topic, and anyone who says that they can is trying to sell you something. The world has never been through the experience of a nation pulling out of the European Union before. We have certainly seen what it is like to add countries to that union, but one deciding to leave is something brand new. The best we can do is use rational thought to take an educated guess as to the results.

What people who invest in gold like to see is a bit of fear and uncertainty in the markets. When this is the emotion that is most prominent in the markets, it becomes a lot easier for gold to rise in value. Thus, the entire Brexit saga has thus far played right into the hands of those who hold gold as an investment.

There has been nothing but uncertainty in the global financial markets since the 2016 vote to leave the European Union. This uncertainty is most heavily felt directly in the United Kingdom of course, but it is not the only place where people are worried.

The country has had three prime ministers since the Brexit vote took place, and none of them have seemed to come up with a solution for how to work through the issue. With that in mind, how long will it be before absolute panic sets in and people start buying up gold in droves? Many think that the time for that is now, and gold prices have been heading higher for some time now. You should always speak with a financial expert before making any financial decisions, but you may want to bring up the idea of investing in gold when you have that conversation.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.

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