The Remain camp were in high spirits when the referendum vote closed on Thursday. They were big favorites, with “Leave” behind on most polls and priced as high as 7/1 by some UK bookmakers. But it didn’t take long for things to turn sour for them. Newcastle was one of the first results to come in and while Remain got the majority vote there, they were expected to win by much more than they did.
Sunderland followed with a big vote for Leave, more than anyone had predicted. And while the Remain voters were hoping that these were just minor slip-ups and that they wouldn’t make a difference in the long run, it created a pattern that lasted throughout Friday morning. By the time the sun came up, the country had secured its future and amongst all the uncertainty only one thing was sure: Britain wouldn’t be a part of the EU for much longer.
But while the Leave voters reveled in their victory, the financial markets went into overdrive.
Stocks, Sterling and Gold
As soon as the Brexit become official, the markets plummeted. £120 billion was wiped off the value of the FTSE 100 and the FTSE 250 took an even bigger hit. A lot of what the Leave campaign labelled as “fear-mongering” on behalf of the opposition concerned the UK’s biggest industries. One camp said that they would suffer, the other said everything would be fine. The markets suggested that the Remain campaign had been right to worry.
The country’s biggest banking groups lost between 15% and 22% of their value, while house builders like Taylor Wimpey suffered the most, losing as much as 32% at one point. These all climbed back up as the day progressed, but they are still struggling and at the close of Friday’s trading the FTSE had lost 3.15% of its value.
This is likely to continue, with uncertainly causing investors to panic. The Sterling also plays a big role, because the more that suffers, the more the markets will suffer. Following the Brexit announcement, GBP dropped to its lowest amount for 31 years.
There is a silver lining to all of this though. In fact, there is a silver, gold and platinum lining. As is usually the case, panic in the stock market sends investors to the safe havens of precious metals. So while the FTSE was dropping, the value of gold, silver and platinum were increasing. And as these metals are traded in dollars, anyone purchasing them with Sterling will experience an even greater rise.
At the time of writing, gold has increased by over 4%, and if you’re buying with Sterling then an ounce of the yellow stuff will set you back more than £960, a staggering amount when you consider that it hovered around £750 for much of 2015 and £800 for much of 2016. Silver, on the other hand, passed £13 an ounce for the first time in years, while platinum passed £720 an ounce.
If you have a stockpile of precious metals, this is great news. It’s only the first day as well, and if economists are to believed, things will likely get worse (or better, depending on which way you look at it) from here.
The truth is that there is no need to panic. Not yet anyway. Britain may not leave the EU for another 2 years and when they do, they may keep many of the privileges that they had prior to the referendum. The EU are a little annoyed at the UK, to say the least, and they will not want to give them too many privileges and then set a precedent. But at the same time, Britain is a huge trading partner and by cutting them off completely they could be doing serious damage to their own economy.
The EU leaders will not act on spite, they will not cut off their nose to spite their face, as the saying goes. But that’s irrelevant at this stage. This is a very uncertain time and in times of such uncertainty, the market will always panic and will always seek to invest in something that it knows it can rely on.
So, while it’s difficult to know exactly what will happen, this should be a very interesting and potentially profitable period for precious metal investors.