Well, some economic indicators – notably the parity of the pound sterling against the U.S. dollar – have tanked since the British public voted to withdraw from the European Union. Conversely the FTSE 100 larger companies stock market Index has risen quite sharply, as has the FTSE All-Share Index. The FTSE 250 index, though, which includes the better mid-cap companies, and is perhaps seen as more representative of UK industry as a whole, did fall sharply, is now beginning to recover, but is still around 8% down on the immediate pre-Brexit vote peak when it was widely believed, at least among financial circles, that the Remain vote would win the day.
But just as there are signs that even the FTSE 250 Index may be beginning to pick up there are also signs that the pound sterling may have bottomed. These movements one way or the other are usually overdone on the immediate aftermath of a momentous decision like that to Brexit. And, as we pointed out here beforehand in our article:Britain reaping the whirlwind of Remain campaign ‘project fear’ rhetoric sentiment is still suffering from the almost certainly strongly exaggerated statements from much of the political and financial establishment (who were mostly campaigning to remain in the EU) of how much the UK economy was likely to suffer from an exit vote. Many of these same figures are now needing to attempt to begin talk the economy up again. While their reversals of stated opinions may somewhat dent their credibility, some of this new found optimism among pre-vote naysayers may well strike home and at least prompt some sort of recovery – probably not to pre-Brexit vote levels but at least part way. Whether any global benefits of UK ‘independence’ from Europe as promoted by the exit campaigners will come about is a little more difficult to assess, but there is probably truth in at least some of these assessed positive advantage of a break from the EU!
One of the other beneficiaries so far of the Brexit vote has been gold, and in pound sterling terms the gain has been quite spectacular, as we had forecast here ahead of the vote, but has this been overdone on the upside? Those who invested in gold in the pound sterling pre-Brexit might want to take a look at taking some profits now that markets are likely to settle down. Not necessarily sell all as we still see some positivity for precious metals ahead, but these investments will have been excellent wealth protectors and it may well be worth banking some of the gains.
There is something of a consensus out there that gold (and silver) may now go through a consolidation period before starting to rise again. Bank analysts, though, still seem to be falling over themselves to predict higher prices by year end. But be warned, these are the same people who, at the turn of the year, were predicting often substantial precious metals price weakness ahead – gold at $1,000 or even less – and have since had to change their tune as gold has been on the way up virtually ever since the markets opened after this year’s New Year holiday on January 4th. Bank analysts are nothing but reactive to the latest trends in their ongoing assessments!
Following the investment progress of the main ETFs could be important. The current consolidation, or perhaps stutter, in the gold price (and its knock-on effect in the other precious metals) has coincided with a small downturn in gold holdings in the world’s largest ETF – SPDR Gold Shares (GLD). We suspect there has been a bit of profit taking already which may have led to this, but we see the latest price move as consolidation rather than the start of a downturn. It may take a significant piece of adverse news – a major bank collapse maybe, or a sharp downturn in the major global stock markets – to set the price back on an upwards trend, but in the current shaky financial climate it may not be too long before such an event occurs. On the other hand should the U.S. Fed again start talking about raising interest rates sooner rather than later, as some are beginning to suggest again, then the gold price could take a knock. One worries about the Fed talking heads agendas between FOMC meetings as those who talk the idea of interest rate rises up, or down, must be well aware of the likely impact on the markets and the potential for making substantial personal gains on the outcome of their prognostications. We’re not suggesting that they are, indeed, playing the markets in this manner, but there is certainly the potential for so doing! It may just be, however, that it is in the Fed’s interest to keep the markets in something of a mood of uncertainty while it deliberates on its next move.
But with Brexit mostly falling out of the equation as the UK and European economies start to stabilise, the next impact may be with the coronation of the UK’s next Prime Minister – either Teresa May (who was pro-remain, but perhaps only lukewarm in that opinion) or the far less well-known Angela Leadsom, who was pro-Brexit. (Strong women seem to be taking over the world!). The policies the winner follows may set the agenda for Europe as a whole and may prove to be the next big precious metals driver – for better or for worse.