UK Citizens Flock to Gold in the Wake of Brexit

No doubt about it – Brexit has been gut-wrenching for UK citizens. Whether they were for or against the British divorce from the European Union (EU), their feelings are intense.

In a Daily Mail roundup of celebrity reactions, British broadcaster Richard Bacon said those who voted to leave the EU are “economically illiterate,” while British actor, producer and CBS show host James Corden wrote, “I can’t get my head around what’s happening in Britain. I’m so sorry to the youth of Britain. I fear you’ve been let down today.” But Harry Potter author J.K. Rowling strives to stay optimistic; she hopes magic could somehow emanate from her books to reverse the Brexit vote.

Although ordinary UK citizens don’t seem as philosophical as their celebrities, they share Bacon’s concerns for their nation’s economy.  According to a Reuters report Wednesday, they’re running to physical gold in a desperate attempt to shore up their finances. Three days after Brexit, as both stocks and the pound sterling continued tanking; Yorkshire teacher Grace Hall put part of her life savings – twenty-five thousand pounds – into gold. She makes clear her reasons for doing so, “My husband and I are both worried about bank failures and our cash getting swallowed up…. I’m also worried about our kids’ jobs and their future.”

Hall and her husband aren’t eccentrics; nor are their financial concerns unusual these days. Precious metals dealers are reporting extraordinary increases in sales of gold. Brexit has caused many Britons, including first-time buyers, to stake their financial security on gold’s traditional function as a safe haven during times of global monetary and market uncertainty.

Reuters quotes Joshua Saul, CEO of the Pure Gold Company, “The speed at which people are purchasing gold is unprecedented….We are seeing people convert as much as 40 to 50 percent of their net worth into physical gold, (compared to) 5 to ten percent in the past….”

The government-owned Royal Mint has seen sales of hundred-gram bars (roughly equivalent to $4,400) multiply seven-fold in the weeks following the June 23 vote. According to the mint, at least half these buyers have chosen to store their gold in its vault.

It seems likely a freeze on London real estate immediately following Brexit helped fuel the rash of gold purchases. Over £18 billion in property funds from retail investors were frozen after an extraordinary number of redemption requests.

One property developer in London, who asked not to be named, said he’d never seen panic over the UK financial system to match what he’s witnessed in the aftermath of Brexit.  For the time being, he’s forsworn buying real estate, and instead has purchased £350,000 (almost $463,000) in gold.

On one hand, we might have difficulty wrapping our heads around the economic turmoil in the UK as a result of Brexit. At this moment the U.S. dollar is the world’s primary reserve currency, so we can try to persuade ourselves what happened in Britain can’t happen here.  After all, we’d have to be old enough to remember the month-long run on U.S. banks and resulting bank holiday in 1933 to get a true sense of how Londoners must have felt during the lockdown on their real-estate transactions following Brexit.

But that doesn’t mean we can’t learn something from their experience. Let’s not kid ourselves about the almighty dollar. The pound sterling is twelve hundred years old, and was once, as the dollar is today, the worldwide standard of a stable, internationally revered currency—and look what just happened to its worth immediately following Brexit.

The good news is that we still have gold – and it’s on the rise.  Gold coinage has been around since 800 B.C. – now that’s a track record.  When the dollar debases, or markets freak out, which, with Brexit aftershocks still unfolding, and a historically insane election season just getting in gear, is more than likely, gold stands firm.

By making it part of your investment strategy now, you’ll own a hard asset that’s still close to the beginning of its bull market run. If I were you, I wouldn’t wait for Texas to secede from the Union, or the President to declare an emergency bank holiday. When the lockdown comes, you’ll have missed the boat.