This week’s Brexit vote has once again reminded everyone that the ultimate safe haven gold always has a place in your retirement portfolio and general investment holdings. The closeness of the polls only a few days in advance of the vote has investors and markets on both sides of the Atlantic on edge. In fact there have been five other Brexit like events over the last forty years that have massively boosted gold’s appeal and prices.
Brexit’s Potential Cascading Effect on the EU
You have probably heard plenty of doom and gloom prognostications on what will happen to the British markets and economy if they vote to leave the EU on Thursday. Billionaire hedge fund manager George Soros has predicted that the British pound will immediately drop between 15-20%, UK stock markets will be roiled, and Britons will be significantly poorer starting in the following days. You may not have heard as much about the potential knock on effects for the European Union. If Britain votes to leave the world’s largest economic block and market, it will set a dangerous precedent for the rest of the group. Analysts are already warning about the possibilities for a disintegration of the EU as the countries that remain attempt to change their relationships with the super-state in Brussels. Others may hold their own exit referendums as well. Frank-Walter Steinmeier the German Foreign Minister suggested last week that the integration which took decades to accomplish could quickly unravel into disintegration. This could happen despite mutual pledges from the other EU countries to keep banding together. Whether the contagion spreads so badly as this or not, a pro-exit vote from the British would certainly be bullish for gold.
Lehman Brothers Bankruptcy of 2008
Most people still remember the tumultuous days surrounding the announcement of investment banking giant Lehman Brothers going bankrupt in 2008 at the height of the global financial crisis. Gold traders must have felt something happening, as the prices before the Lehman Brothers collapse were volatile. On the announcement that they had collapsed, everyone understood that the greatest financial crisis since that of the Great Depression had suddenly erupted. It soon became clear that insurance giant AIG, investment banks Merrill Lynch and Bear Stearns, and enormous national bank Washington Mutual were going to have to be bought out or backstopped by the government in order not to fail as well. In only a week following the Lehman bankruptcy, gold prices skyrocketed by more than 11%. Lehman creditors and investors only recovered a portion of their money years later.
Twin Towers 9/11 Attacks of 2001
You will never forget the 9/11 attacks for their moving imagery of the two World Trade Center towers collapsing after the hijacked airplanes crashed into them. Over 3,000 people died in the buildings’ catastrophic demise. Once it came out that Al-Qaeda the global terrorist organization was behind it, it became clear that a new worldwide war on terror would result. COMEX Gold and all U.S. financial markets were shut down in the wake of the attack. Gold roared 6% in London trading from the morning to the afternoon of September 11th, 2001. The safe haven metal never since looked back at the London morning prices of $271 per ounce.
Exchange Rate Mechanism Crisis of 1992
George Soros knows a thing or two about catastrophic declines in the British pound. Throughout 1992 he and his Quantum hedge fund bet heavily against the Bank of England being able to hold the high levels of the pound’s exchange rate. Britain was a part of the European Exchange Rate mechanism, the predecessor to the Euro at the time. Eventually by September, Soros and his investors prevailed as the U.K. could not afford to keep supporting the pound. The country had to leave the European ERM as a result and to devalue the pound by 15%. This became known as Black Wednesday. Gold began to run up and its prices increased by 50% over the following two years.
Black Monday Stock Market Crash of 1987
The greatest stock market crash since the ones of the Great Depression proved to be the Black Monday crash of October 19, 1987. Stock markets around the globe plummeted starting in Hong Kong, then moved West to European markets before crushing the U.S. markets. Interestingly this crash did not originate in the U.S., and American exchanges only tanked after other global markets had declined significantly. When the dust had settled at the closing bell, the Dow Jones had fallen by 508 points, representing 22.6%, to 1,738. Gold shot up and notched a 7.9% increase in only that week.
Oil Crisis and Yom Kippur War of 1973
In 1973, both Syria and Egypt attacked lands that Israel held. This began the Yom Kippur War that saw America eventually intervene to send Israel military hardware and much needed supplies. The Arab world responded by cutting off oil shipments to the U.S. and its allies. In the week after the beginning of the Yom Kippur War, gold prices rose by 3.7%.
In Conclusion
There will always be situations in the world that recommend you hold gold in your portfolio. Whatever happens with the Brexit vote, the next financial or geopolitical crisis is only a matter of time. These five gold moving events should strengthen your resolve to acquire and hold more of the yellow metal as you are able.
W. D. Crowder is an American published author with decades of experience in financial writing. He specializes in many areas, including: investment, economics, international relations and more.
