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George Soros and a Gift for Gold Investors

Written By Geoffrey Pike

Posted June 27, 2016

sorosbrIn the movie The Patriot, in the lead up to the American Revolution, Mel Gibson’s character asks, “Why should I trade one tyrant 3,000 miles away for 3,000 tyrants one mile away?”

Nearly two and a half centuries after the American secession from Great Britain, the British have declared their own form of secession.

June 23, 2016 was a historic day, where 52% of the voters in the United Kingdom voted to leave the European Union.

The British may be trading bureaucrats in Brussels, Belgium a few hundred miles away for a lot more tyrants at home. But they are already living under those tyrants anyway. Why suffer through an additional layer of bureaucracy?

It is interesting that so many on the left – who like to preach democracy – were so outspoken against leaving. The whole concept of the EU is anti-democratic in the sense that the thousands of EU officials are unelected by the general populace.

It’s not to say that politicians who are democratically elected can’t be terribly oppressive, but it does point to the hypocrisy of many “democrats”.

To be sure, this whole referendum was a huge blow to the entire establishment and their quest for a new world order, or a one-world government. The EU has been part of that plan for nearly a century. That is why virtually every establishment figure around the planet came out strongly against the UK leaving.

The outcome was a great victory for the cause of liberty. Maybe the British will be ruled by a bunch of tyrants at home, as opposed to in Brussels. But decentralization almost always favors liberty. It is better that rules and regulations apply to fewer numbers of people. It is also easier to change city hall than it is to change an unelected body far away.

The people who voted to leave had their differing reasons. And I’m sure not all of them were good. It was a vote against globalism and in favor of nationalism, generally speaking.

Unfortunately, some people seek protectionism and do not believe in free trade. This is a mistake, as voluntary free trade is beneficial in terms of increased wealth and prosperity. But you don’t need to be part of a massive bureaucracy with rules and regulations to have free trade. You just need for governments to stay out of the way.

The establishment warned of instability if the “leave” vote won, especially in terms of the economy. Perhaps the establishment was correct on the one point that financial markets could suffer.

Your Money

After the results came in, the markets quickly jumped. Stocks around the world plummeted on Friday. Gold spiked. Bonds spiked, as interest rates fell. The euro went down. The British pound was down as much as 11% at one point, which is virtually unheard of in the currency markets.

Almost everyone was wrong in predicting the results of the referendum. The polls were mostly wrong. The betting sites were wrong. The media pundits were mostly wrong. Even the financial markets were wrong, as stocks were soaring prior to the results. The most surprising thing is that bond investors did not see it coming.

We don’t know how exactly things will play out from here. It may or may not be a smooth transition out of the EU, assuming that the exit is not stopped by the establishment. The UK never adopted the euro, which will make things much easier.

The short-term volatility is to be expected. Markets generally favor predictability and the status quo. This vote disrupted both. But just because the financial markets showed a negative reaction, it does not mean the Brexit was a mistake.

As with any major event, market investors tend to overreact and surpass where they should go. Even on the first day of digesting the results, the British pound recovered a bit from its low earlier in the day.

If you are investing outside of Europe, I would not let the Brexit alter your strategy too much. U.S. stocks will not be impacted much in the long-term, regardless of whether you are bullish or bearish. The short-term volatility is just that: short term.

The Brexit vote does call into question the entire European Union and there may be more votes to follow. In fact, just over the weekend, George Soros – an establishment type figure if there ever was one – said that the entire European Union has been called into question and that its disintegration is “practically irreversible”.

This possibility alone is likely to put downward pressure on the euro. It would not surprise me to see the euro quickly hit par with the U.S. dollar. If there is one investment to consider based on the Brexit vote, it would be to short the euro.

After the results came in, the U.S. dollar strengthened and gold spiked, which doesn’t happen too often. Usually gold will go down in dollar terms when the dollar is up. This just shows that there was a run to safety. Investors were running to bonds, dollars, and gold. We can’t be sure which one will win out.

Investors were running away from stocks and anything having to do with Europe, except for certain bonds. The German 10-year yield went negative on the news.

There is no reason to fear this Brexit vote. If stocks continue to tank, then they weren’t very strong to begin with. In terms of liberty, this vote is encouraging.

If anything, this vote to leave could be beneficial to some investors who want to stay out of Europe or even short European stocks and the euro.

The British people have freed themselves from the clutches of the EU rulers. If you can find a way to profit from that, then consider it a win-win.