Out of the financial mayhem of Brexit, it is gold that comes out as the winner. The yellow metal was up again Monday following a nearly 5 percent surge on Friday and racking up advances of more than 25% this year. Gold is trading at around $1,330 an ounce. It stands now at its highest level in more than two years.
Gold prices usually rally in times of intense market turmoil when investors search for a safe haven and the UK exit from the European Union has certainly created a financial situation of chaos and anxiety. The last such crisis occurred when gold hit an all-time high above $1,900 in 2011. Investors at that time 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.
Gold=Hedge
Gold has been used as a hedge against volatile markets for generations. As a precious commodity it goes back to the Egyptians who believed that the yellow metal should be buried alongside the embalmed bodies of the dead in order to support them in the afterlife.
The connection between gold and currencies emerged in 550 BC when the first gold coins were uncovered in what is now modern Turkey. By the 19th century most global currencies were fixed to gold and this was the norm until 1971 when it was removed as a currency standard backing the U.S. dollar by President Richard Nixon who then allowed it to float freely.
The value of gold stems from its scarcity as there are very few gold mines throughout the world.
Paul Tustain, the chief executive of online platform BullionVault believes that although purchases of the metal had risen sharply in the last sessions, overall it is the net sellers that stand out, having liquidated a quarter of a ton of gold since Friday’s Brexit vote.
According to Tustain, "Our users bought a lot of gold going into this crisis, and some are selling to bank substantial profits from Friday's shock.”
On Wall Street Friday, gold purchases zoomed up only to return to business as usual after the weekend as uncertainty and high prices dampened the initial jump in gold demand from retail investors.
In Singapore over the weekend, sales of gold and silver were reported to have normalized after surging more than 600 percent in its four-hour peak sales window on Friday. And in India, which competes with China for the title of the world's biggest gold market, high prices on Monday have put off some potential buyers. Many Asian consumers dislike higher prices because they see gold as a long-term store of wealth, rather than a speculative investment.
Gold dealers in France and Germany reported surging demand while in the UK buyers bought up whatever gold bars and coins they could afford.
Since its link to currencies, gold has acted as a market barometer. When times get tough or unsettled, investors look for the glitter of gold to tide them over until the insecurity subsides and as such it would appear that gold will continue to shine for the foreseeable future.