LAWRIE WILLIAMS: Should UK’s pre-Brexit gold buyers take profits?

The pound sterling dropped around 14% from its immediate pre-Brexit level, while the gold price, in US dollar terms, rose by around 8% over the same period.  The combination for a UK gold investor who purchased the yellow metal prior to the Brexit vote has thus been quite spectacular in the space of the three weeks since then.  Should this be a time to take profits and sit on the gains, or to stay invested in gold against possible further increases ahead?

We are inclined to suggest a degree of profit taking here – not all one’s holding, but perhaps a part.  Politicians and some economists are now starting to talk up the UK economy after the Brexit vote fait accompli, ahead of which the pro-Remain campaigners were all issuing dire threats as to what would happen to the economy were the people to vote to leave the EU, as they  did.  There is thus a strong chance that things will stabilise, and the pound, which has been the main sufferer from the Brexit vote, may indeed, start to pick up, while the gold price already seems to be consolidating around current levels.

Now, although we are positive on the road ahead for the gold price in the medium and long term, the potential combination of a period of flat, or even stuttering, gold prices coupled with a possible pick-up in the pound sterling which may well have been oversold as these things often are around a shock to the financial community like the Brexit vote, does suggest that some of the gains made to date may be worth monetising.

There are some positive points out there pointing to the doom and gloom which has pervaded some UK economic thinking perhaps being somewhat exaggerated.  The stock market is telling us something different.  The FTSE 100 for example is actually UP 3% since its immediate pre-Brexit peak, although to be fair, the FTSE 250 which is perhaps more indicative of the UK economy as a whole is still down 7%, but beginning to rise – up around 8% since its post-Brexit low.  These figures do seem to contradict the continuing weakness in the pound and suggest it may be in for some partial recovery at least.

If one takes into account a potential sterling partial recovery and a stuttering gold price then the timing could be good for the aforementioned idea of partial profit taking.  It’s an opinion which could be worth following with the option of perhaps moving back into gold again once some kind of equilibrium in both the gold market and the pound has been achieved.

08 Jul 2016

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com