Editorial: Brexit vote stokes gold rally

With all the political turmoil surrounding the United Kingdom’s surprise, non-binding vote in a June 23 referendum to leave the European Union, the world has certainly learned a few lessons.

Number one for gold miners and investors is that gold performed exactly as promised by gold bugs, serving as a valuable insurance policy against political and currency risk in any investment portfolio.

Polls in the months leading up to voting day all pointed to “Remain” winning, as did the early voting results, but as the night wore on, “Leave” swung to the winning side. Ultimately, 51.9% of U.K. voters supported an exit from the EU (17.4 million votes) while 48.1% (16.1 million votes) expressed their desire to remain, with a turnout of 72.2%, out of a total population of all ages of 65 million.

The Leave votes were concentrated in Wales and England outside London, while the Remain votes were centred in London, Scotland and Northern Ireland. The U.K. has been in the EU and its precursor since 1973.

The referendum result shocked stock, bond and commodities markets around the world. In response, gold outperformed all currencies, with the U.S. dollar notably rallying strongly as the go-to safe haven.

Gold rose from a PM fix of US$1,262.15 per oz. on voting day to US$1,315.50 per oz. the next day, for a 4.2% gain, with intra-day highs of 8.1% or a two-year high. Over the same 24-hour period, silver prices rose 4.3% to US$18.04 per oz., platinum was up 2.5% to US$987 per oz., while palladium acted like an industrial metal and dropped 2.1% to US$548 per oz.

At press time, gold has been holding the line above US$1,300 per oz. and last traded at US$1,313 per oz. — up 8.3% over the past 30 days and 11.3% over the past year.

The day after the vote, U.K. bond yields hit their lowest levels ever and Brent crude oil fell by 4.9% to US$48.41 per barrel. Perhaps most shocking of all, the U.K. pound plummeted over 12% against the U.S. dollar in a two-day rout to its lowest level against the U.S. dollar in 31 years, touching as low as US$1.31 on June 27. There is no recovery in sight, and some banks are predicting the pound will fall to US$1.15 this year.

In sterling terms, gold prices rose an astounding 20% on the day after the vote, and searches for “buy gold” on Google UK were up 500%.

The FTSE 100, while plunging 8.7% midday on June 24, actually ended the week up 2%, as can happen in a country’s stock market when a currency plummets and people pile into stocks (cf. Ecuador in the late 1990s). Other stock markets around the world showed strong declines on June 24 but have since rallied and stabilized.

What’s the French word for “trolling”? Libération cover showing Conservative MP and Leave campaign leader Boris Johnson.

Meanwhile, there is no end in sight to the political uncertainty in the U.K. as it becomes abundantly clear that the Leave leaders are a callow and opportunistic bunch that have never had any plan on where to take the country if they actually won the referendum.

Prime Minister David Cameron, who said he is resigning by October, has shown himself to be the worst U.K. leader since Neville Chamberlain, first by calling the unneeded referendum in the first place, then by helming a tepid Remain campaign, and finally by so glibly accepting the referendum results that wouldn’t have passed the Clarity Act standards we now have in Canada thanks to Jean Chrétien and the Supreme Court of Canada.

Labour Leader Jeremy Corbyn put in his own feckless and narrowly union-focussed Remain campaign, and has now overwhelmingly lost a confidence vote, but maddeningly refuses to resign.

The exact process to take the U.K. out of the EU is uncertain, although it is generally expected to take longer than two years. Article 50 governs the withdrawal but has never been used before.

The result has unleashed all kinds of unforeseen actions such as First Minister of Scotland Nicola Sturgeon saying that Scotland may refuse legislative consent to dropping EU law in Scotland, and Northern Ireland also starting to ponder sticking with the EU and getting closer to the republic to the south.

At this point we’d have to predict that Brexit will never happen as new national leaders come forward and more of the U.K. public comes to regret a Leave vote they’d cast without fully thinking through the consequence or having put greater effort into reforming the EU from within on sticky issues such as immigration and culture — efforts that have paid off well enough in past decades for a province like Quebec to stay within Canada.