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What is the Impact of Brexit on the Prices of Gold and Silver?

7 April 2021

With the UK leaving the European Union, questions regarding Brexit’s impact on metal prices increased. Market experts and analysts were concerned with such questions as:Will metal prices go up or down in 2020/2021? How will the metal industry be affected by Brexit?The metal industry has suffered greatly by the uncertainty caused due to delays during the Brexit negotiations. UK metal traders reported a major decline in the metal prices of up to 50%. This was a result of reduced consumer demand. However, there is potential for the value of metals to improve during 2021 especially due to the increased certainty following the Brexit deal. Many experts support that there will always be a demand for metals in the UK.

How did Brexit influence the Gold and Silver Market?

As already stated, many analysts argued that gold and silver prices will soar because of Brexit. This was mainly due to the fact that investors would have taken their money from the stock exchange in their effort to find a safe-haven asset. For instance, when the EUR/USD declined, many investors turned to real money such as gold and silver.

As James Butterfill, head of research and investment strategy at ETF Securities, stated before Brexit: “Brexit would be very beneficial for shorting sterling and we will probably see a big pick up in gold. In that scenario we think gold could hit $1,400 [an ounce]”.There are three potential reasons for this:

The metal market usually responds positively when there are expectations that the FED would follow through on their rate hike promises, as history shows repeated patterns of gold and silver price climbing along with interest rates. Even a small rise in interest rates will negatively impact metals’ trading.

Advantages of the Metal Market

All this uncertainty can be utilised by traders to their advantage by investing in gold and silver every time that the FED Chairwoman Janet Yellen talks about raising interest rates. People should not fall for this trick though and panic about their positions as they can go ahead and buy their metals or shares at a better price.Gold price is expected to rise to $1,500 while silver to $20 irrespective of political uncertainties such as Brexit or the FED raising rates.

However, failure to do the latter will result in gold rising above $1,600 and silver above $27 by the end of the year.It is also expected that over the next months, the gains in gold and silver will be very high, while quality mining stocks will be where the real money is made.

The past has shown that mining stocks have provided leverage 4 times more than the underlying move of the metals. Some mining stocks are up 200% or more. For instance, silver stock pick is up 270%. After such a big move, many investors are hesitant to buy although mining stocks are bouncing off drastically.Overall, it seems that whether post-Brexit realities will have a long-term impact on UK metals remains to be seen. In order to avoid any risks and fill in the gaps, traders may already be focusing their efforts on alternative, emerging markets outside of the EU.


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