Brexit and gold.

Brexit.

Once the result of the vote was known the incumbent “talking heads” who generally voted remain derided the result that had only happened because of lies peddled by the Brexiters when both side seemed to peddle lies in equal measure and democracy was derided as populism; the wisdom of crowds, an idea usually trumpeted by economists, was never mentioned. The experts believe that Brexit won because they didn’t present the argument properly, and not for one moment considering that the people may have voted for the option that is in the best long term interest of the United Kingdom.

We may be seeing a repeat play out in America. The current odds for Trump to win the presidential race are better than a brexit vote at the same stage in the months leading up to the vote.

The Euro.

“ The Euro has failed, both as an economic and a political project. Moreover, its failure is tearing the European Union apart. Can Europe respond creatively to stop this destruction?”

Janis Varoufakis – former finance minister of Greece.
Nassim Taleb, author of the black swan defines the bureaucratic elite as IYI’s – Intellectual yet idiots.
When people vote the way of the IYI elite, it is “democracy”. Otherwise it is misguided, irrational, swayed by populism & lack of education.
And in doing so, exposed the world of average joes to the awful truth of an “Intellectual-Yet-Idiot” ruling class… that is finally being overthrown…

Gold.
For me, the biggest bid that could come into the gold market will be the fear of a bank bail-in and the prospect of retail investors discovering that their bank deposits aren’t there any more.

We saw this happen with the Cyprus banking crisis in 2013, where real people discovered that their bank deposits were actually loans that weren’t going to be paid back.

 

Screen Shot 2016-07-19 at 17.35.57

 

Bitcoin.

Its worth just adding a short note on Bitcoin. The price of Bitcoin in GBP has more than doubled this year. The longer the price of Bitcoin stabilises or increase the more adoption this will drive. Indeed the longer that Bitcoin survives the likelihood of mass adoption increases.

You hear isolated stories of consumer payment adoption of Bitcoin, a very good example of this is Uber in Argentina. Like in many jurisdictions the government has weighed in on the side of the licensed taxi drivers. Banks and payment processors have been leant on to prevent Uber from being able to operate, so the work around has been to accept payment in Bitcoin.

I think consumer adoption of Bitcoin – used for day to day payments – is the more important story than the fear of bank accounts being frozen, although a bank-bailin could be the final snowflake that sees bitcoin adoption hit a tipping point.

 

4 year bitcoin chart

4 year bitcoin chart

Bitcoin 5 year chart.

I do think its very possible that we reach a tipping point in Bitcoin adoption in the next five years. This will mean another big price rise like we saw in 2013 and a period of massive volatility before the market finds its equilibrium.
Politics

Our cautious optimism on the Brexit decision rests on the expectation that expert opinion will now be forced to recognise the shortcomings of the European Union’s architecture, especially the Euro,thereby forcing the required reforms. These reforms may involve further integration or disintegration, quite possibly with different parts of the union choosing different paths. Handled correctly, either of these paths could and should be preferable to the status quo.
That said, we do not expect this process to be smooth. The experts have been instructed to implement a reform they believe to be unnecessary for reasons they do not understand by an electorate they do not respect. Political turbulence and therefore market turbulence are likely to be elevated for years to come.

 

About the Author

Ralph HazellRalph is CEO of The Real Asset Company, and was previously a trader and market maker in the fixed income and commodity markets for over 10 years. He was a founding partner of Trafalgar Financial Futures in Gibraltar, and of Jebel Tariq Trading in Dubai, which was the first company to automate market making in gold futures on the DGCX Dubai Gold and Commodities exchange. He is passionate about gold’s vital role within the financial system, and has been investing in gold since 2000. He set up The Real Asset Company as a service he would choose himself.View all posts by Ralph Hazell