What The 'Brexit' Means For Gold And Other Commodities

Brad Briggs's picture

Wednesday, June 29, 2016 - 10:30am

by Brad Briggs

The news out of the United Kingdom rocked global markets. In an historic referendum vote, citizens of the U.K. narrowly voted for a "Brexit" -- a British exit from the European Union.

Since joining the European Union in 1973, a fair number of Britons have been skeptical of the governing body. British attitudes toward European unity have been... complicated, to say the least. Winston Churchill advocated for "a kind of United States of Europe" during a speech in Zurich in 1946, while simultaneously setting the precedent for an arm's length relationship with the continent throughout his career.

Now that the votes are cast, questions remain about what this will mean for trade, immigration, travel and a host of other issues. What is certain right now, however, is that the market is treating this development in a negative light.

On Friday, the FTSE 100 (the main British stock index) closed down about 3.15%, while its currency (the pound) fell to levels not seen since 1985. Meanwhile, European exchanges fared even worse. The German DAX was down 6.8%, the French CAC 40 was down 8%... Even the Japanese Nikkei Index was down nearly 8%.

U.S. markets were crushed, too: The Dow lost 611 points (-3.4%), while the S&P 500 closed down 3.6%.

The carnage has since continued into this week's trading.

It's important to remember that when events like this play out on the macro scale, you should view your current equity holdings in a sober light. Sure, you may be seeing red on your screen today as you check your portfolio, but ask yourself: "Does this truly affect the underlying thesis for why I bought this stock?"

Chances are, probably not.

But as my colleague, StreetAuthority's resident commodities expert Dave Forest, recently pointed out, some of the only happy investors in the market right now are those that own gold stocks...
 

      News overnight of the "leave" vote has sent gold soaring, with the metal up as much as $80, to touch $1,340 per ounce -- the highest level seen in 27 months.

That's a definite breakout for gold -- which had been struggling to top $1,300. And gold stocks have responded in a major way.

As I write, the S&P/TSX Global Gold Index is up 6%. My portfolio holdings in the gold sector are likewise jumping, too.

These stocks are now reaching breakout levels. And I believe the Brexit push could be a catalyst for a next big leg up in the gold market.

As Dave described in a recent issue of his premium newsletter Scarcity & Real Wealth, there's been a lot of pressure from short sellers in the gold market lately. But the Brexit vote could finally be the catalyst that prompts some of those sellers to throw in the towel and cover their short positions -- lending further support to the price rally.

In short, he says, it's a good time to be in bullion.

 

      Elsewhere, a "leave" vote for the U.K. is generally considered to be less positive for commodities, with expectations running high that fears of an economic slowdown following a UK break from the European Union could depress copper and oil.

Those concerns, however, look to have been somewhat overblown.

Given the limited effect the Brexit is likely to have on these commodities, I don't expect continued weakness in these stocks over the coming weeks. That is more than I can say for the wider equities market -- with the Dow Jones Industrial Average down 450 points this morning as I write.

Overall, today's action is a stark reminder that sectors like gold are far from an outdated relic. Amid all the current global uncertainty, investors are returning to bullion as a hedge -- just as they've done for millennia. This is all a good sign for the future in this space.

Dave went on to reiterate that he is holding tight with his positions in gold miners, many of which have been on a tear this year. If you've followed along with Dave's recommendations recently and bought in, then you should be prepared to hold tight. It could get rocky, but the outcome could be worth it.

P.S. I've mentioned before here in StreetAuthority Daily that we've been bullish on gold for some time. Right now, we're offering two free premium reports on profiting from the gold boom to those who are interested in joining Dave at Scarcity & Real Wealth. To learn how to get your hands on them, simply follow this link.

Brad Briggs does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.