Brexit has been a problem in many ways. First and possibly foremost, in the amount of sheer turmoil, it’s created in minds and markets around the world. Everyone trying to figure out “what it means” creates a kind of chaos old-timers are familiar with, but market newcomers — meaning anyone who started paying attention in 2009 or later – are finding the Brexit uncertainties difficult to deal with.
The morning emails brought an interesting little editorial on a new behavior happening in England — British people selling their gold to capture the recent rise in gold prices measured in British pounds. Yes, just like here in America, when the pound dropped the price of gold in pounds rose, in this case approximately 8%. So now people who bought gold on the uncertainty surrounding Brexit are apparently looking to capture their “gains” in the recent price rise.
This is actually normal human behavior in investing – we call it “taking profits too early.” The original purpose for the trade was probably one of two. First, to either preserve wealth should the stuff hit the fan, which would cause gold prices to skyrocket. And you could sell the gold in another currency if you needed to, say, sail across the Atlantic to find a new place to live.
Or Second, to capture huge gains if the price of gold happened to skyrocket during “uncertainty crises” that Brexit might have caused. So far this hasn’t happened yet.
In any case, one rule old investors know well is not to chase short-term gains with long-term investments. You hold on until you see the result you expected, the environment for the trade changes radically, or the reason for the trade goes away. As none of these have happened yet – Brexit turmoil is still in full swing – old hands would still be clutching their gold tight, waiting for another shoe to drop.
Only time will tell if selling now is a good idea or not. Your friendly Gold Enthusiast is on the “not” side. But then, your friendly Gold Enthusiast didn’t tie up any net worth specifically on the Brexit hypothesis, instead of viewing Brexit as another symptom of the general European economic malaise.
Time will tell…
Signed, The Gold Enthusiast
DISCLAIMER: The author is long NUGT and JNUG which are closely related to GDX and GDXJ. These positions are too small to affect the market in any way. The author has no plans to trade these positions over the next 72 hours.