Yesterday Britain voted to exit the European Union the so called
BREXIT. As expected the decision was
close but the result was unexpected and threw global markets into a
frenzy. The European markets took the
brunt of the selloff with Germany down more than 8%. US markets reacted in less of a panicked
fashion but were still off more than 3% at opening. The initial knee jerk reaction will probably
be muted in the short run as the actual exit will take a number of years to effect
and it remains unknown as to what sort of impact this will really have on the
UK and the rest of the European Union.
Certainly the press and the economists of the world are having a field
day predicting a catastrophe but as we all know these predictions are more
often than not vastly exaggerated.
I for one am not even going to try (in this blog at least)
predict the long term fall out of this decision but there is a chance that
other European countries try to exit as well causing the downfall of the
EU. This may well happen but the main
question is whether the core group of nations remain and I believe that there
are sufficient benefits for the 6 largest economies to remain unified
regardless of whether smaller outlier countries exit (not that the UK is a
small economy but the UK has sat on the fence of the EU since it was created so
the result of an exit should be less impactful than one of the core group of
nations exiting). So while the markets
of the world gyrate wildly to the unexpected news it is my thought that in the
long run the overall impact will be muted.
That said the vote exposed just how annoyed the world is
with their various political bodies. Not
only did the UK snub their noses at the incumbent party leading to the
resignation of the Prime Minister, but now there is renewed talk of Scotland
leaving Britain. The United States is no
different in that Trump has achieved a level of success that few believed would
be possible without a population that is resentful of their leaders. With the vast majority of Americans feeling
that their politicians are out of touch with their plight plus the increasing
divide between the have and the have nots it is clear that a change is
inevitable. It is just a shame that this
desire for change was not directed towards a candidate with real leadership
qualities that could infect rational change rather than a crass bully but
unfortunately the desperation has been misdirected.
The other thing that should be clear is that precious metals
and particularly gold are a hedge against the current malaise of the
world. Gold spiked more than $70 an
ounce after the BREXIT was announced. As
opposed to the collapse of the global markets gold rallied more than 6%! Gold stocks also went into orbit with some
names up more than 10%. It is amusing to
me to listen to gold haters argue about what a poor investment gold is when
during times of crisis it has repeatedly proven its worth as a hedge against
disaster. If you believe, as I do, that
the world is clearly on the wrong path then owning gold, gold stocks or gold
ETFs is a must. Even if you hate the
idea of owning gold today should be a signal that gold will provide downside
protection for your highly overvalued stock portfolio.
So take note and realize that there’s gold in these BREXITs
and other global catastrophes particularly when you have the world’s central
bankers determined to destroy any kind of fiat money value. Take this as a warning and position yourself
accordingly.
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