Brexit means the gold price looks about to go gangbusters

The gold price could rocket with miners like Newcrest Mining Limited (ASX:NCM) up 8.5% on today's Brexit vote.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The results from the United Kingdom's vote on whether to remain a member of the European Union or not suggest the Brexit vote has won the day. This has wide-reaching implications across a number of asset classes, in particular gold.

A Brexit is likely to trigger a mass flight to safety, especially among the powerful global asset managers, which means the price of gold as a hedge against uncertainty is likely to soar.

This afternoon gold has lifted around 6 per cent to US$1,325 an ounce, although I expect it could lift another 20 per cent over 2016 to around US$1,600 an ounce given the weight of capital that is now likely to pour into the ultimate safe haven asset.

This call is not so outlandish when you consider that the Brexit vote is likely to put back the timing of US interest rate rises, with US Fed Reserve chair Janet Yellen effectively conceding this point in several public statements recently.

As US cash rate hikes are put back gold will become increasingly attractive in relative terms as it does not pay interest, but does represent a store of value.

More important is the uncertainty created due to the unknown potential consequences of a Brexit.

The uncertainty includes:

  • Potential for the United Kingdom to collapse with Scotland and Northern Ireland already reportedly preparing referendums to leave.
  • Potential for the European Union to collapse with one of its most powerful members gone. Now it's possible others like Italy, Spain and France, among others, could leave.
  • Potential for the single currency and market in the EU to collapse
  • Potential for North European banks and governments to face massive debt write downs if EU collapses
  • The potential for global interest rates to remain lower for longer, this will support gold as it pays no interest

Today, Australian gold miners are rocketing higher and I expect more gains ahead:

  • Newcrest Mining Limited (ASX: NCM) up 8.2% to 8.2%
  • Northern Star Resources Ltd (ASX: NST) up 9.2% to $4.99
  • EVOLUTION FPO (ASX: EVN) up 12.8% to $2.47
  • St Barbara Ltd (ASX: SBM) up 8.4% to $3.09
  • Silver Lake Resources Limited. (ASX: SLR) up 9.9% to 50 cents

Depsite what I consider to be a bullish outlook for gold prices and ASX mining businesses, I would not recommend speculating on gold shares.

Rather I would look to take advantage of today's market falls to buy good quality ASX businesses with some exposure to US dollars.

I moved nearly 20% of my share portfolio to cash on June 16 and will be more than happy to reinvest it back into the equity markets over what I expect will be a prolonged period of short-term weakness.

On the ASX the kind of businesses I expect could outperform include defensive US dollar earners such as Amcor Limited (ASX: AMC), Brambles Limited (ASX: BXB), ResMed Inc. CHESS (ASX: RMD) or even Westfield Corp Ltd (ASX: WFD).

Although I expect nearly all the shares on the ASX will be trading at deeper and deeper discounts over the weeks ahead, which should present plenty of buying opportunities. One business I have my eyes on is Challenger Ltd (ASX: CGF), down 5.7% today, but I expect it will be a beneficiary of the coming falls in equity markets.

Motley Fool contributor Tom Richardson owns shares in ResMed Inc. You can find Tom on Twitter @tommyr345 The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »