Brexit could herald historic gold rush

Analysts and traders agree that Brexit would likely dent the pound, the stockmarket, UK government gilts and house prices, and dent them much more severely than a vote to remain would boost them.

This asymmetric risk also faces eurozone assets too, because Brexit would hurt the wider European Union (EU). Even the US dollar could suffer if markets foresee a Donald Trump victory in Britain's anti-establishment vote.

Wealth managers wanting a safe haven traditionally turn to the Swiss franc and, increasingly, the Japanese yen. Both those currencies are run by central banks determined to devalue them in a bid to boost export industries.

Amid a Brexit shock worldwide, central-bank intervention could stop the Swiss franc and Japanese yen offering a bolt hole.

Gold may rise on a Brexit shock

Gold faces no such handicap, trading freely against all major currencies in a global market. While nothing is certain, gold may well rise against all currencies on a Brexit shock.

Nothing about the EU referendum is certain, and gold isn't guaranteed to riseLooking at five historic shocks to financial markets (profiled below), gold priced in sterling has risen by an average of 2.0% on the morning of the shock, and a further 1.4% that afternoon.

Over the following week, gold rose another 3.6% on average for UK investors, offering a solid counterweight to the shock drop in sterling, shares and other assets.

Nothing about the EU referendum is certain, and gold isn't guaranteed to rise amid what could prove a high-risk event. But a growing number of UK investors aren't waiting for the result to buy some gold as insurance.

While gold demand amongst private investors has risen worldwide in 2016 to date, the jump in gold buying by UK savers stands out.

With less than two weeks to go until the EU referendum, new UK demand continues to outpace that from other western markets, despite the gold price in sterling rallying hard from end-May's drop to three-month lows.

We believe the growing fear of what a potential Brexit vote could do to shares, bonds, housing and other asset prices is driving this jump in new UK gold investing.

Since the Brexit campaign started in February, older UK citizens have been flocking into goldSo far in 2016 we have seen the number of first-time UK users of BullionVault jump 59% ahead of January to May last year, compared to a 34% rise across our next nine largest national markets.

This pattern has continued so far in June, with new UK user growth 59% ahead of the last 12 months' daily average, while our next nine largest markets have grown only 5% faster.

Additionally, since the Brexit campaign really got started in February - when Boris Johnson declared he wanted out - older UK citizens, traditionally associated with wanting to leave the EU, have been flocking into gold.

We have seen over-60s account for 75% of growth in the number of new UK customers over the last four months, a significant change considering that over-60s represent just 40% of our existing UK customer-base.

The five shocks examined above

1970s oil crisis

The Yom Kippur War began on Saturday 6 October 1973, when Egypt and Syria attacked Israeli-occupied lands in Sinai and Golan Heights.

Gold opened Monday sharply above the previous Friday's two-month lows. Within six weeks of that shock, gold never again traded below the £40-per-ounce level.

1987 stockmarket crash

Gold fell steadily throughout the 1980s and '90s. Priced in sterling, gold began 19 October 1987 (Black Monday) near a 12-month high at £286 per ounce, a level not seen again until 2005.

1992 ERM crisis

Britain's ejection from the euro currency's predecessor, the Exchange Rate Mechanism, on 16 October 1992 (Black Thursday) stemmed gold's long decline at £189 per ounce. It then rose to £274 within two years as the pound was devalued by the currency markets.

2001 Twin Towers attacks

Having fallen steadily for two decades running, dollar gold price had found its floor one month before 9/11 at $255 per ounce, and jumped as news broke of Al-Qaeda's attacks on the US.

The sterling gold price had turned higher in mid-1999 from £158 per ounce. Since 11 September, gold has never again traded at that morning's price of £186.

2008 Lehman Bros' bankruptcy

Gold priced in sterling was already highly volatile, and it slipped and surged in dollars as the financial crisis tipped towards a collapse.

But as with 9/11, gold has never since traded below 15 September 2008's morning price of £433 per ounce.

Adrian Ash is head of research at BullionVault.

This article was originally published by our sister magazineMoney Observer here.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.