Against most predictions, Britons voted to leave the European Union in yesterdays’ referendum.  Pollsters, and even the bookmakers, had obviously failed to account for the huge underlying anti-EU sentiment across the country.  In regional terms only Scotland, Northern Ireland , and perhaps most importantly London and the odd pocket in the richer south-east of the country, voted to remain in the Union.  This will undoubtedly build-up problems ahead, particularly should Scotland, as its leadership has threatened, push for a new referendum with the intention of gaining independence and rejoining the EU on its own.  In Northern Ireland the prospect of having to re-implement border controls with the Republic, which is in the EU, could reignite sectarian differences.  Should Scotland secede and join the EU, the imposition of border controls with England, which would presumably become necessary, and free movement of people between the two countries, would be another extremely touchy subject!

Ross Norman, CEO of UK bullion dealers Sharps Pixley, noted in an early comment this morning: “Gold rocketed this morning as the shock UK referendum result saw carnage in financial markets, prompting a rush to safe haven assets like gold. With sterling falling to its lowest in 30 years, the biggest gains were seen in gold for UK investors which rose 20 pct in just a few minutes before settling this morning at gbp 960, a gain of 12 pct on the day so far.  “

We would add here that markets, perhaps somewhat surprisingly, made something of a significant recovery  with both the pound sterling and the stock market  both recovering about half the ground lost in the initial knee-jerk reaction before slipping back a little again.  Meanwhile gold, at the time of writing, remains about $60 higher than it was before the Brexit vote began to look a reality, but did fall back at one time to a level seen only just over a couple of weeks ago well before the referendum, although at a time when the Brexit possibility appeared to have taken a temporary lead in the opinion polls.  Certainly on initial considered reaction, once the London markets had opened, the pound sterling has not performed nearly as badly as some – notably George Soros, who had predicted a 15-20% drop – had forecast, nor has the gold price risen as much as many market followers had suggested.  But it is early days yet.

Commenting on the retail market for gold in London, Norman said: “At Sharps Pixley we have already seen our busiest day ever with online sales draining our stocks of our larger bullion bars and prompting us to call on emergency reserves of kilobars from Germany. Our stocks of many coins have also been sold out with only limited availability today. 

“Stocks of physical gold for retail investors in small denominations are normally quite modest in the UK compared to markets like Germany where gold buying is more commonly adopted by savers. We have had to call on our parent company in Germany, Degussa (said to to be the largest in Europe in the sector) to help us out with additional bullion. Germans are a cautious people with not only gold reserves owned by the Bundesbank about 10 times the size of the UK Treasury’s very modest 310 tonnes (just a little more than Lebanon’s gold reserves – thanks Gordon) – but Germans have 4 times the propensity to save compared to UK savers. 

Norman went on to note:  “Gold has done what it does best and that is to provide investors with protection against currency weakness and political uncertainty- it is a safe haven asset with wealth preservation properties – the prescient investor has been well rewarded by his caution. We have always cautioned against betting on gold for short term outcomes, but over the long term it does what it should and that is to provide people with financial insurance.

We are thus, in the UK, entering a pretty uncertain time.  Initial market reaction suggests that the financial sector is taking a brighter view on the exit vote than many had suggested would be the case should Brits vote ‘out’.  However they are looking very volatile at the moment and they may take some days, weeks or even months to settle down again.  We doubt the initial fallout will be anywhere near the way things will eventually settle down.