Triggering Brexit: The Impact on The Precious Metals Market
Thomson Reuters Reflects on Market Impact Since Brexit Vote
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With Article 50 now officially triggered, Ross Strachan, from the GFMS Team at Thomson Reuters, provides his thoughts on the impacts seen in the precious metals market since the Brexit vote in June 2016.
“In the precious metals market, the most substantial impact of the Brexit vote has been in the UK. Naturally part of this is due to the impact of political and economic uncertainty leading to purchases of precious metals and especially gold, but also important is the impact through the exchange rate. Namely, the impact of sterling’s 31-year lows against the dollar was that precious metal prices surged, (see, for example, the gold chart below). The net result of this is that gold bar hoarding in the UK was up by an estimated 39% in 2016 compared to the previous year. It is worth noting that the increase in demand before the vote was similar to that thereafter. Scrap supply has also surged since the vote given the price effect and was up 67% year-on-year. While the pace of growth has slowed appreciably since, it is still robust.
The most delayed impact of the Brexit vote is now being felt in the jewellery sector, as over the summer and early autumn 2016 it was largely immune to the impact as consumer spending was sturdy and the impact of higher sterling precious metal prices was not being passed through to the retail prices. However the winter has seen both retailers and jewellery fabricators suffer severely as import prices create a squeeze. Indeed, UK hallmarking data for February shows the number of pieces being hallmarked (of gold, silver, platinum and palladium) down 25% compared to a year earlier and gold being hit even more sharply as the number of pieces dropped by 30%.
More generally, the impact on the global precious metals industry has been minimal overall. Indeed London’s central role in this sector is more likely to be threatened by the growing importance of Asia than any developments in Europe, including the triggering of Article 50. However, there have been impacts in two areas. A short lived but interesting impact was that there was an uptick in selling in the largest European precious metals sector, namely Germany. Briefly, this led to net selling of coins in Germany for the first time since the global financial crisis and coins selling at a discount in July in that country for the first time in many years. By the autumn things had returned to normal and there has been no effect on European markets over the past six months or so relating to the Brexit vote.”
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[Image Credits: Thomson Reuter]
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