Brexit and gold prices

It’s not your normal type of shop that Ross Norman operates, at least for British standards. The tall Brit resides in Mayfair, close to the Ritz Hotel, only a few meters away from Jermyn Street where they sell tailored shirts, handmade cheese and luxury shaving cream. But Ross Norman has something different on offer: Gold, in the form of bars, coins and jewellery. The whole shop is gold-coloured. Norman has golden showcases, a golden chandelier as well as a golden vault behind the cashier. A big screen on the wall shows the most recent development of the gold price. The red line, not a surprise, has gone straight up only.

Ross Norman’s portfolio is a very special one. Contrary to Germany where retail investors have been buying gold for decades, the investment is relatively new to Brits.”My customers are still surprised that they can actually buy gold here”, Ross Norman said when I visited the shop on Tuesday. For decades, gold has not really been a focus for British retail investors. “The reason for this is simple: The Pound Sterling has been around for 680 years, and we have never had hyperinflation like Germany”, Norman explained. Because Britain did not have the same traumatic experience of a near total loss of savings as Germany had, the attitude towards gold is different.

However, this seems to have changed rapidly. Sharps Pixley Ltd., a subsidiary of Degussa from Germany, started offering gold to retail investors in London in January. Until then, British customers could only buy gold online. Up until April, demand tripled, every month. Now, just a week before the British EU-referendum on the 23rd of June, with heightened market volatility and fears of more to come, Ross Norman has observed a surge in demand for his products. “There was a tsunami”, the 56-year-old said. “Within a week, we ran out of Britannica coins three times.” These coins are, besides one kilo bars (currently trading at around 28.000 pounds), the preferred item for Norman’s customers.

Heightened uncertainty in the UK, but also in other markets in the world, has led to gold reaching a 12-month-high. Most recently, gold traded for 911 pounds per ounce (31,1 gram). On the futures exchanges, the precious metal has jumped the psychologically important threshold of 1300 dollar per ounce. Still, Brits buy comparatively little amounts of gold. According to the World Gold Council, British demand for bars and coins reached 9.4 tonnes last year, compared to 113.8 tonnes in Germany. However, “the amount of people who have lost trust in the current financial system is rising”, said Ross Norman.

He expects that the demand for gold in his Mayfair shop will increase, the closer we get to referendum day. In order to be prepared, he has already ordered his staff to store more large gold bars. So is he satisfied, now that it seems he picked the right time for opening his shop? Norman shrugged when I posed that question. “I actually don’t like the current gold price”, he stated. “There is a lot of fear, an inherent weakness.” According to him, there are too many people speculating on gold these days which leads to a rising but unstable gold price.

“Brexit to my thinking is still a lot of noise”, Norman said. Let’s see whether he is right.

 

 

 

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