Gold May Become The Biggest Brexit Winner
The yellow metal was up again Monday following a nearly 5% surge Friday. Gold has now soared more than 25% this year and is trading at around $1,330 an ounce. That’s its highest level in more than two years. Miner Newmont was one of the few stocks in the S&P 500 to gain ground on both Friday and Monday. The stock has now soared 110% this year.
Gold often rallies in times of intense market turmoil. It hit an all-time high above $1,900 in 2011 when investors worried about the debate over the debt ceiling in the U.S. Congress and subsequent downgrade of America’s credit rating by Standard & Poor’s.
And with CNNMoney’s Fear and Greed Index once again hitting Fear levels in the wake of the United Kingdom’s decision to leave the European Union, it seems like gold could continue shine for the foreseeable future.
Several high-profile investors made bets on gold before the Brexit vote too.
George Soros bought gold miner Barrick Gold in the first quarter and also acquired options that would give him the right to purchase the SPDR Gold exchange-traded fund.
Investing gurus Stanley Druckenmiller, Ray Dalio and Jeff Gundlach have also been bullish on gold lately.
So can gold keep rallying?
Frank Holmes, chief investment officer of U.S. Global Investors, said he thinks gold could easily get back to $1,500.
He thinks gold is even more attractive following the Brexit vote because it has pushed interest rates around the world even lower.
Deflation is now a bigger worry than inflation. Conservative investors are less likely to want a government bond in Germany with a negative interest rate or a U.S. 10-Year Treasury yielding only about 1.4% when they could buy gold instead, Holmes argues.
“Gold always goes up when there are negative interest rates,” he said.
David Beahm, president and CEO of Blanchard & Co., a precious metals investing firm, is even more bullish on gold. He thinks that the U.K.’s decision to leave the EU could lead to several more countries doing so.
Some are already calling for the Netherlands to follow the U.K. with a so-called Nexit. (Or is Hexit for Holland? Dexit for Dutch?) A wave of EU departures could push gold back above $1,900.
“Gold could test the highs of a few years ago due to the fears of all this uncertainty,” Beahm said.