By tomorrow morning, we’ll finally be able to put the recent market drama behind us when Britain heads for the polls!
The handy Bloomberg Brexit Tracker predicts a less likely chance of Briton leaving the EU.
Yesterday, the tracker reckoned there was a 31% chance of the ‘Leave’ vote getting the higher numbers. That was down from around 40% on Tuesday.
Bloomberg’s Brexit tracker
Click to enlarge
Phew. Drama over.
At least it appears that way. The S&P/ASX 200 has seesawed in the past month, reacting to the idea of a ‘financial system’ meltdown if the UK leaves the EU.
The XJO dipped as low as 5141 last week on the news. Yet the rally back up to 5270 means the index is only down 1.15% for the past 30 days.
S&P/ASX 200 — 30-Day chart
Source: Google Finance
Click to enlarge
Does this mean the fear is over? That the markets seem to understand that a Brexit isn’t actually a crisis…?
The vote takes place today in the UK. We’ll be sleeping as it unfolds. However, if they do manage to muscle up the numbers for a leave vote, brace yourselves Australia.
Tomorrow could be a very interesting day for Aussie traders and investors. If you’re a day trader, and the leave vote wins, get your short positions ready!
The polls might say a Brexit is doubtful at this stage.
Yet, four days ago, Jim gave an interview to Bloomberg, explaining why there’s a far greater chance of the leave vote prevailing than the polls make out.
In this 11 minute interview, Jim reasons that the elites are out of touch with popular sentiment. He says the people — the voters — are the ones directly affected if they remain in the EU.
Jim tells Bloomberg that income inequality, poor economic growth and immigration are the driving factors behind citizens wanting to leave the EU.
He goes on to explain that the political and financial elites are so out of touch with regular people that they can’t see it coming.
‘They live in a bubble,’ he tells Bloomberg. ‘When they go out to dinner they [the elites] go out to dinner with other elites. They are always the last to know.’ In other words, they’ve got no idea what the grunts of the economy want or need.
If you’re still a little lost on the pros and cons of the Brexit, I have just the thing for you.
I recently found this excellent article explaining the economic benefits of why Britain should leave the EU.
Prominent British economist Andrew Lilico explains to Vox that exiting the EU is exactly what the country needs.
But not straight away.
The way Lilico sees it, Britons bought themselves an extra decade of support for their economy by joining the EU. Nonetheless, the support is over, and now it’s holding back the country’s growth.
Lilico argues that Britain should leave, but negotiate an exit over the next decade.
The Brexit fear trade — physical gold!
All this Brexit chatter has boosted the gold spot price for June.
Gold reached a yearly high of US$1,298 last week. Yesterday, it fell back a little, trading at US$1,267 per ounce.
Spot gold price — 12-Month chart
Click to enlarge
But there’s a growing group of Britons that couldn’t care less about the short term price movements.
It turns out some Brits are nervous about their wealth if the leave vote wins.
The good old fear trade is back — hoarding gold!
According to The Telegraph in the UK:
‘Worried savers are buying gold bars and stuffing them in safes at home, data suggests, as fears mount that a Brexit-induced financial meltdown could be just around the corner.
‘Google searches for the term “home safe” are running at 61pc of the level at which they peaked in November 2008, the point of the financial crisis, and are now higher than at any point since.
‘Royal Mint, Britain’s official producer of gold and silver coins and bars, said sales have soared by 32pc over the past month, with customers rushing to buy sovereign and Britannia bullion coins and signature gold bars in particular.’
Of course, there are always those that don’t understand that gold is money. ‘Experts’ warn that buying physical gold is nonsense. The Telegraph then trots out a financial advisor, who explains there’s more bang for your buck in ETFs — not bullion — you silly investor…
‘Last night experts warned buying gold bars to store them at home is “nonsense”. They said savers wanting to preserve their nest-eggs would be better off investing in gold investment funds, which offer better value for money.
‘Ben Yearsley, investment director at Wealth Club, a financial advice firm, said: “Gold bars are very poor value for money and you run the risk of losing them or having them stolen at home. If you’re going to buy precious metal you might as well buy a gold or silver investment fund, where you will get much better value for money due to economies of scale.”’
People who advise against buying physical gold seem to forget that gold is money.
Buying physical bullion isn’t about ‘value for money’.
Owning physical bullion — both gold and silver — is about preserving your wealth, and protecting it in volatile times.
As for gold ETFs? Here’s what Jim says:
‘Exchange traded funds, or ETFs, are the black boxes of the investment world. Most investors like them because they provide vehicles for targeted investment themes; and they’re easy to trade using standard brokerage accounts and popular exchanges. Yet looks can be deceiving. What appears convenient in a growing economy can become dangerous in a market panic or downturn.
‘ETFs are created and arbitraged by the big banks. And they’ll lack liquidity if investors all want to get out of their ETF positions at the same time. Liquidity is mostly an illusion. It’s there when you don’t need it, and it disappears just when you need it most. That’s true in general, but it’s even truer for relatively new and untested instruments like ETFs.
‘When you see signs of trouble, be prepared to get out of your ETF positions first before the sponsors and regulators bolt the door shut and don’t let you get out at all.’
Editor, Jim Rickards’ Strategic Intelligence
Editor’s Note: This article was originally published in Jim Rickards’ Strategic Intelligence. If you wish to find out more about the service, click here.
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