Gold has been the go-to commodity around the times of an economic crisis
By the time you’re done reading this article, we would have inched closer to knowing the outcome of the British referendum. The Brexit vote has taken the world by storm and everyone including financial market analysts and money managers are eagerly waiting to know what the event has in store for the global markets.
If Brexit indeed happens, the event which would then be labeled a “Black Swan event”, will have ramifications that will not only be felt by the European Union but by the world economy as well and may have severe market disruptions in the short term with one not being sure of what the long term repercussions could be.
While analysts around the world are eagerly waiting for the results, let’s look at the impact this event can have on the commodities market in India. The nature of the commodities market is such that they tend to emulate the trend that occurs globally. If Brexit is in favour of Britain leaving the EU, the immediate effect is that there will be a surge in the gold prices. This is because, at times of such crises, traders and investors get unnerverd and turn towards a safe haven asset.
Historically, gold has been the go-to commodity around the times of an economic crisis, and we’ve seen this happen during the Greek debt saga in the recent years.
While Gold may see an uptick, there may be a decline in the price of crude oil owing to the weakened global growth which is forecast, should the EU referendum take place. A similar downward movement could be seen in the prices of base metals as well. Although these price moves are not backed by fundamental reasons, it could leave traders with some short term pain.
(The author is chief operating officer at Zerodha)