Brexit is a shock to an already fragile system. It threatens the long term viability of the euro.
It is the kind of event that illustrates the rationale for allocating assets to gold and gold mining stocks. However, Brexit is not, in our opinion, a one- time event after which the world will return to “normal”. It could very well be the beginning of the unwinding of the fiat based international monetary system as we know it.
According to a June 25th commentary in the Financial Times, “The Fed is fast becoming a sideshow as forces work against a rate rise.” Investor confidence in central bank policies has been essential to supporting the status quo in financial markets including currency relationships. Brexit, because it was such an unexpected outcome, is a sign that such confidence may not be justified. Instead, confidence may be replaced by fears that the current central bank imposed regime of super easy money has reached a dead end.
What comes next is anybody’s guess, but at the margin, we expect that increasing numbers of investors will consider gold exposure as part of a safe haven strategy. In short, we believe the portfolio was already well positioned for Brexit as well as other potential similar but unexpected events. It should therefore benefit as increasing numbers of investors seek out gold and gold mining stocks.
We have therefore made no significant changes to our current strategy and portfolio allocations.
Fund Manager of Falcon Gold Equity Fund, Juli 7, 2016