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The result of the referendum on the UK’s continued membership within the European Union has had major consequences. The British voted to leave, resulting in the so-called ‘Brexit’, a result the market hadn’t expected.
The far-reaching consequences have had little time to be felt. The euro and the pound respectively lost 4.5% and 11.9% against the US dollar on the Friday the referendum results came in, the biggest daily drop in the history of these currencies. Equity markets were not left out: the SMI conceded 3.44%, the FTSE 100 3.15% (after plunging more than 8% in the day), the DAX 6.82% and the CAC 40 8.04%. Even crude oil lost more than 5% that day.
There has been a rebound in stocks since, although some markets have fared better than others. The pound remains under pressure. Markets are set for more volatility and steep price movements.
The prudent investor will be looking for ‘refuges’ – assets which remain stable or even appreciate when there’s a lot of market turbulence. There are plenty of market risks ahead, including political impasse, financial contagion and the macroeconomic impact. So where are the havens that can preserve portfolios and guard against the risks?
This is the most obvious instrument in times of high volatility. Gold is the ultimate safe haven. Following the Brexit vote, the yellow metal has stabilised at around $1320 an ounce, compared with $1260 previously, an increase of 4.5%.
Its range after the initial post-Brexit surge has been tight, between $1312 and $1330, a difference of just 1.3%. Gold remains, above all, extremely stable. Historical volatility over the past 100 days is around 18%, a low level, and this should be noted by the prudent investor.