Gold has been used to make royal crowns and other items of value since the beginning of the ages. Since its discovery, gold has managed to maintain its relevance and stature, and due to recent economic instability it looks as though gold could be making a comeback in the minds of investors.
With the recent passing of the Brexit vote which saw an increase in the instability of the British economy, gold and junior mining stocks have been no exception to the post-Brexit effects. Brexit’s impact has been profound, credit ratings have already been downgraded with agencies like Fitch and S&P finding the British government to be a less safe option when it comes to lending. The pound has also suffered as it weakens against the US dollar. The interesting fact out of all of this however is, as a number of stocks including the Pound have been going down with fears of inflation in the coming future, gold prices and junior mining stocks have been on the rise.
With the declaration of the Brexit vote, gold prices reached an unparalleled two-year high. This upsurge came about as a result of investors looking for alternate ways to store their money, taking the instability of other investments such as property and stocks. Investors have been selling equities in exchange for safer asset options like gold. Global sentiment has strongly impacted gold and hence given it a substantial price bounce.
The expected volatility and uncertainty in the markets is likely the answer behind the post-Brexit rise in mining stocks and gold prices. Precious metals such as gold have over time proven to be very stable in the market and as a result are preferred when it comes to safe long-term investments.
So where to next? My guess is that in the near future the demand for gold and junior mining stocks will continue to rise as political and economic stability herd’s investors towards the safe haven assets. The rise in junior mining stocks could give the Australian economy that boost it’s looking for, bringing along many happy investors for the ride.