The pound took a major hit following UK’s snap elections where the Prime Minister’s ruling party lost majority stake in the Parliament. The Sterling pound is headed off to yet another shocking drop in the eight months since Brexit.
Financiers Prepare for “Soft” Brexit
Following the election results, the markets are expecting a “soft” Brexit. Prime Minister Theresa May promised a “hard” Brexit when calling for the elections. A hard Brexit is the term used for Britain completely leaving the European single market. In the soft Brexit scenario, which Britain seems to be heading off to now, the country will only partially separate from the European Union, most likely keeping some trade ties and allowing immigration.
The possibility of a soft Brexit is favorable to international markets, but the pound nevertheless lost value mainly due to the uncertainty surrounding the British economy. This indicates better futures for gold. However, when counting for dollars, gold futures overall have fallen as investors are expecting the U.S. Federal Reserve to increase interest rates in the coming weeks.
Gold Still Looks Promising
Despite the pound and the dollar seemingly holding it together, financiers are still supporting gold. According to one strategist that spoke to Bloomberg Business, traders are anticipating more political instability as the months progress.
Brexit talks will soon begin, but will not conclude for at least the next two years. In the U.S., controversial President Donald Trump is increasingly getting entangled in RussiaGate, an FBI investigation that is looking into whether the Trump presidential campaign colluded with the Russian government to sway the November election. Trump recently fired the FBI director leading the investigation, James Comey, making an already bad situation even worse.
Even if the Brexit talks end favorably, some traders seem to believe that gold futures will rise in terms of the dollar quite soon. Therefore, investments in gold will not likely fizzle out anytime soon.
Small Scale Investors Come for Gold
It’s not just the professional investors who are investing in gold. Small-scale investors, mainly those investing for retirement, save in and buy gold preparing for a volatile dollar in the future. Retirement investors who use dollars can add gold to individual retirement arrangements in the US. In the UK, post-Brexit retirees are diversifying individual portfolios with physical gold.
Why Gold
More and more investors prefer gold over other forms of precious metals, like silver. Silver is vulnerable to price manipulation, therefore, financiers naturally prefer to have gold on their portfolio. Other precious metals like palladium and platinum enjoy lower profile investment opportunities. These metals are more known for industrial appeal rather than saving potential.
Gold is much preferred largely due to its appeal for trading. Gold bullion and bars can easily be used to trade in case currency trades are not desired. Gold dealers are offering customers convenient forms of physical gold such as Valcambi CombiBars, which are gold bars that can be broken down into smaller ingots with marked weights.
Overall, despite significantly strong performance of the dollar, gold futures continue to look promising for both European and American investors.
