Investing in Gold Post Brexit: Is it a Smart Idea?

The shocking Brexit sent European financial markets into panic mode. By the time Britons fully realised what they had done, the pound had plummeted. Financiers and investors, in utter fear, began to speculate regarding pound-based stocks and investments. Though it’s been several months since the historic Brexit, the effects of the vote still last.

Investors, especially the ones in Europe, may wonder what kind of investments are safe in this post-Brexit market. Almost as soon as the news of Brexit hit, the gold markets began to skyrocket. This August, investments in gold by regular savers hit a record high since the end of August 2012. Price gains for gold have steadily risen since Brexit. So, should everyone just buy gold coins and bars now?




Brexit Fears are Clearly Driving Investors Towards Gold

The price of gold hit a new peak following the global financial crisis in 2008. The prices ebbed around August of 2012, when the U.S. and EU markets showed signs of stabilising. Whatever the good those upward bound markets achieved has been thrown into chaos once again by Brexit.

According to several economic news reports, short-term traders have been moving cash and gold stocks rapidly. As a result, investors have poured billions into ETCs that are based on the price of gold. The price and demand for gold indexes and solid gold have risen as well.

As of September, the gold prices are still high. They may not be as high as they were following the Great Recession, but the prices are solid enough to make even the most cynical investor hopeful.




Short Term Gold Investing Vs. Long Term

Soon after Brexit, short term investors and traders made a killing either buying or selling gold. But the big question remains—what about the long-term investors? Those who look for returns in three to five years may not be as eager to dive headfirst into the suddenly popular gold market.

Gold prices are historically volatile. However, they are an invaluable asset to have during times of economic uncertainly, like following the mortgage market crash or the Brexit. Long term investors therefore should think of gold in terms of hedging in losses. Gold stocks can diversify a portfolio in a highly reliable manner.

Investors dealing in the pound market must also think of how long the effects of Brexit might last. British newspapers have reported that Brexit will not be immediate. The British government will need at least two years to finalise the process of exiting the EU. That means the effects of Brexit could very well stretch into another two or even three years. The pound market might not recover until Brexit happens and the British economy stands on its own as an independent market. This could take years.

Considering the overall uncertainly regarding Brexit, long-term investors might seriously want to consider investing in gold, either solid or ETCs.


Precautions

When investing in gold post Brexit, it’s important to be aware of several precautions. It’s tempting to grasp large-cap stocks of gold mining companies or ETCs. But financiers like Credit Suisse have warned investors not to. Instead, investors are advised to invest in gold soberly and with a clear mind. Approach investing in gold the same as you would do with any other investment. Buying stock in gold mining companies is dependent on how well the company is doing, not how well the gold price indexes are doing. Therefore, it’s more lucrative to buy solid gold rather than stock based on the price of gold.


Comments