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Brexit and other risk factors drive worried investors to gold


In investing, the definition of a ‘safe haven’ is an asset that is expected to retain its value or even increase its value in times of market stress and uncertainty

Traditionally, gold is perceived as a safe haven because in such circumstances, it often moves up in value when equities and certain currencies (known as ‘risk assets’) decline sharply.

History shows the price of gold increased significantly during the global financial crisis, topping US$1,900 per ounce in September 2011. After a short move lower, the Greek debt crisis and fears over its withdrawal from the euro-zone propelled the price of gold higher, though not quite touching the highs of a year prior.

Last week, gold was again a beneficiary as rattled investors deserted international stock markets in the wake of Britain’s unexpected vote to quit the European Union.

Institutional investors were not the only ones among the action with internet giant Google reporting that the number of searches for the phrase "buy gold" spiked by 500pc once it became apparent the ‘leave’ side was likely to win.

Reflecting the mood, calls to the Depository division here at The Perth Mint from private individuals anxious to invest funds in precious metal coins and bars were dramatically higher than average.

Uncertainty, the enemy of the markets, was compounded by the resignation of UK Prime Minister David Cameron immediately after the vote was confirmed. Fears that Greece and possibly other members of the European Union will now look to follow Britain’s lead, and that the fall-out from all this is damaging the world economy has some experts predicting gold’s rally is not yet over.


Belief in gold in times of crisis is based on the idea that it helps protect the value of money. In an example of how this works, the World Gold Council says that a U.S. family home could be purchased for $25,000 in 1971 – a sum no longer enough for a mortgage deposit at today’s prices! By contrast, 700 ounces of gold (the equivalent of US$25,000 in the 1970s) can buy a US$1 million property today.

For this reason, it advocates a diversified investment portfolio containing some gold as an insurance against global gloom-and-doom scenarios.“Our analysis shows that gold can be used in portfolios to protect global purchasing power, reduce portfolio volatility and minimise losses during periods of market shock,” it says, suggesting a modest 5 to 6 per cent allocation is optimal for investors with a well-balanced 60/40 portfolio.

With additional risk factors including the underlying strength of China’s economy and the possibility of a Trump presidency, the allure of gold will continue to strengthen in the minds of investors already fearful over the consequences of the Brexit.

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