Brexit Friday: British Pound Proves To Be Weakest Link As Gold Wins Big

London (Jun 25)  While pretty much all financial markets were roiled Friday in reaction to Britain voting in favor of leaving the European Union, the biggest loser was the British Pound.

Not only did the pound see its biggest loss in 30 years as prices dropped to a low of $1.3230 against the U.S. dollar, but it also saw its biggest intra-day move in history. Analysts noted that the price action completely surpassed the last significant price action seen in 1992 when famed investor George Soros shorted the pound and earned the title: “The man who broke the Bank of England.”

Adrian Ash, head of research at Bullion Vault, said in an email to Kitco News at within the last 24 hours his company has seen “crazy” demand from its U.K. clients as they have bought a combined total of £1 billion in gold bullion. U.K. residents now hold more gold than “most of the world’s central banks, and more than all but the world’s 11 largest ETPs,” he said.

"Of course a billon [pounds] isn't what it once was," he added in a follow up email.

While the pound lost more than 8% against the U.S. dollar, its losses against gold were even more astounding. In Friday’s peak, gold was up around 19% against the pound. Kitco’s Gold-Currency charts show just how much gold has gained compared to other fiat currencies like the U.S. dollar. Currently, in spot markets, gold is up 14.08% against the pound, last trading at £962.29 an ounce.

Although gold has already seen unprecedented demand in such a short period, sentiment is not expected to shift any time soon as investors will continue to digest the implications of the Brexit vote.

“Even though the situation is likely to calm down gradually following the first reaction, the ‘Brexit’ issue is bound to preoccupy the markets for some time to come,” said analysts at Commerzbank.” In our opinion, the uncertainty as to what will happen next in the political arena should lend solid support to gold over the next few months.”

Currency analysts at BNP Paribas said even after making historic lows, they see more weakness for the pound in the near-term.

“Four factors are set to weigh on the GBP: uncertainty; financial market stress; foreign direct investment (FDI); and other capital flows. We expect that GBPUSD is likely to decline as low as 1.30,” the analysts said in a report Friday.

The yellow metal made broad gains in the global currency market following the release of the referendum results. The market uncertainty caused gold to hit a record high against the Aussie dollar. Currently, gold is up almost 6.5% against the Aussie dollar, last trading at $1,761.48 an ounce.

Looking at other Kitco currency charts, gold is up more than 7.5% against the euro, up almost 7% against the Canadian dollar, and more than 6% against the Swiss Franc. Gold’s worst performance was against the Japanese yen as it is only seeing gains of 1.2%.

SOURCE: KitcoNews