British exit from the European union also known as Brexit is the official withdrawal of British from the European union.United Kingdom government decided to hold a referendum on Brexit issue on 23rd June 2016.This referendum will finally decide the future of the UK in the European Union. Economic experts and politicians have mixed opinions on the Brexit. Some economic experts believe that Brexit will benefit Britain and some are really pessimistic about the exit.Educated people are more in favor of Britain staying in the EU than the Brexit.
According to the economic experts, Brexit will leave very long lasting effects on the British and world economy.It will also affect the international currency and commodities market.Pound sterling has lost 3.50 % value against the US dollar since the start of the current year.Experts are upbeat about the gold market as gold prices in USA are expected torise after Brexit. Following are the most important ways Brexit will influence the gold trading and gold prices in USA.
Gold prices in USA will rise due to Safe Haven Sentiment
Gold prices started the month at$ 1211 per ounce and currentlygold is trading at price of $ 1268 per ounce.It is 4.62 % increase in the gold prices.This increase in the gold prices is mainly due to upcoming Brexit referendum on June 23rd,2016.Most of the experts believe that gold prices in USA will rise more as investors are looking for safe haven assets after expected Brexit. Experts are expecting major assets to fall after the Brexit. This situation will increase the demand of the gold commodity in the market as it gold helps investors to hedge against many economic uncertainties.
Uncertainty in the World economy and Gold Prices in USA
Brexit canbadly affect the world economy and especially economy of advanced countries like USA.American investors heavily rely on the UK economy for their foreign investments.UK is employing more than one million Americans.American businessmen and investors will certainly lose free access to the 28 countries of European Union. Brexit will also affect the business environment of these 28 EU countries as USA heavily invests in these countries too.
Bank of England believes that Brexit is the largest immediate risk for the UK and world economy. Financial markets are feeling the heat already as they have started tumbling.The experts at Bank of England also believe that berexit will greatly damage the reputation of the European Union.It will cause flight of capital from the Britain and most of the member countries of European Union.This situation will increase the demand of the gold commodity in the market as gold helps investors to save themselves frommany economic uncertainties in the World economy.
Uncertainty in the UK economy and Gold Prices in USA
UK economy is extremely dependent on the European Union. According to the statistics,90 % of the UK trade takes place with EU.The GDP of the country may fall between 3 % to 7 % in next few years after Brexit. UK treasury has cautioned UK government that its economy can contract more than 3 % in next two years.The unemployment rate is also expected to reach 8 % in next few years.These all indicators will increase the uncertainty in the UK economy. The increase in uncertainty will increase demand for the safe heaven assets like Gold.This increase in demand will increase in the gold prices in USA and worldwide.