Blanchard and Company’s recent analysis of the United Kingdoms June 23 Brexit referendum piqued the interest of senior MarketWatch columnist Chuck Jaffe, who invited Blanchard CEO David Beahm to appear on his MoneyLife podcast.
Jaffe apparently was intrigued by Blanchard’s comparison of the Brexit crisis to the Lehman Bros. collapse of 2008and the potential for this major stressor on the European Union to light a fire under gold prices.
The Lehman crisis definitely brings back bad memories for a lot of investors, Beahm told Jaffe in the July 8 program (starting around minute 42:00). What we feel at Blanchard is that there are a lot of glass balls that are up in the air. And this Brexit caught everybody off guard from the media reporting on the ground in the UK everybody thought that this was going to be something that was not going to happen. And it happened.
In addition to immediate and longer-term problems for the UK’s economy, Brexit could spread breakaway sentiment in other European nations unhappy with their EU memberships. Immediately thereafter, you started hearing other countries wanting to do the same referendum vote to exit the EU as well, Beahm said. And you start looking at down the road, if you have more than a couple more countries exit the EU, maybe the EU ceases to exist, maybe the euro ceases to exist. And when you start thinking that, that this may be a Lehman event that caught people off guard, that lasts for several years that investors need to prepare their portfolios for.
And both today and during the Lehman crisis, gold responded as a lifeboat for investors. Just like in 2008, gold acted just like it should have, Beahm said. It added added liquidity to the marketplace; people were able to liquidate it and get cash. And then once it settled down at $700, it went all the way up to $1,900. So we’ve seen gold over the last 30 days or so go up over $100, and we think its poised to continue that trend for the several more years, especially as some of these glass balls keep falling.
Beahm and Jaffe also discussed a range of other topics, including how much gold to allocate to a portfolio; diversification principles; investing in physical gold versus gold ETFs; and’silvers out-performance of gold so far in 2016.
Overall, the near- and longer-term picture for precious metals looks strong, Beahm noted, citing not only Brexit but also ongoing easy-money policies from central banks as well as the uncertainty surrounding the U.S. presidential election featuring presumed candidates Hillary Clinton and Donald Trump. I really don’t think we have any times of certainty anytime soon, and because of that, we feel that gold and silver are definitely assets that investors should have in their portfolio, just because of the storm that could be on the horizon, that’s headed this way, and as an insurance policy, its just prudent at this point, Beahm said.
We don’t know what exactly the long-term effects of Brexit will be, not to mention the other geopolitical and economic crises brewing across the globe. Therefore, investors need to worry about the return of their money, not necessarily the return on their money right now, in this environment, Beahm advised.