Gold prices continued to move upwards as stock market around the world reacted negatively to the UK’s decision to leave the European Union.
In early trading gold prices rose by more than 6%. The precious metal was trading at $1336.66 - up from $1256.50 last night, before the outcome of the Referendum was known.
Gold is traditionally seen as a safe haven and store of value in times of market turbulence.
Adrian Ash, head of research at BullionVault.com said for British investors the gains were even more significant once the falling value of sterling was taken into account. Valued against the pound gold surged 22% overnight – its fastest move in history against sterling.
He said: “This now means than in pounds gold is worth £1000 an ounce – a three year high.”
Price rises on back of strong year for gold
This latest increase comes on the back of a strong year for gold, with prices rising by about 25% since the start of January. This price rise has been on the back of Brexit fears, plus weaker economic news from the US reducing the likelihood of further interest rate rises in the near future.
BullionVault reports a significant increase in demand for gold – and other precious metals – ahead of the EU Referendum. Over the last week it said the company had traded £18.2 million of physical gold and silver, this represents a 76% increase on the trading volumes seen the previous week.
Ash added: “This is just the kind of crisis which gold helps savers and investors insure against. Gold offers certainty and security as stock markets and currencies sink, just as it did during the 2008 meltdown. The difference is that this shock was clearly signposted, and many private investors didn't wait for today's result to get prepared.”
Demand for gilts pushes yield to new lows
Gold isn’t the only “safe haven” asset to see its value appreciate this morning. Investors have also piled into Gilts – debt issued by the UK Government – sending yields to record lows.
The yield on 10-year gilts dropped as low as 1.014% in early trading this morning – as prices of this sovereign debt increased.
Jim Leaviss, the head of retail fixed income at M&G Investments said: “We’re seeing some significant moves in fixed income assets as financial markets had very much discounted a ‘Remain’ outcome. Speculation remains that the Bank of England could move to help stabilise the economy. Leaviss said he “wouldn’t rule out a rate cut from the Bank of England, perhaps from 0.5% down to 0%”
This post was written by Emma Simon of Morningstar.co.uk
