David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

As we all know, big political shocks are extremely bullish for gold. Should today's Brexit referendum result in the U.K. voting to leave the European Union, there can be no doubt the yellow metal will go off like a rocket.

It might jump as high as $1,400 an ounce from the current $1,277.35, according to Societe Generale's Mark Keenan and iiTrader's Bill Baruch. Spooked investors dumping the pound will inevitably chase the glitter of bullion instead. Friday's 2.3 percent price spike is certain to spark a wider rally.

Right? Wrong. Look back on the past few decades of major geopolitical shocks, and the picture of gold as a haven is mixed at best.

Safety Dance
Spot gold reacted to the economic turmoil of 1997 and 1998 by dropping and dropping
Source: Bloomberg

From July 1997 to September 1998, the Asian financial crisis caused devaluations and IMF bailouts in Thailand, Indonesia, South Korea, the Philippines and Malaysia, while in Japan, half a dozen major financial institutions collapsed. Another devaluation caused the Russian ruble to lose 62 percent of its value in three weeks, forcing Wall Street to step in and save the hedge fund Long-Term Capital Management. Pretty bullish for gold, you'd think. In fact, it fell 13 percent over the period.

Look at the way gold moved in the months after a random selection of the past few decades' major geopolitical and economic shocks and it's hard to discern any pattern at all. Except for one: Since the LTCM bailout, the Sept. 11 attacks are the only upset in our list that didn't prompt gold to move in exactly the same direction as it ended up shifting across the full year.

Six of One, Half a Dozen of the Other
There's no real pattern to the change in spot gold prices over the months following shock events
Source: Bloomberg

That pattern suggests that, if anything, shocks don't cause gold to buck any trends, but to follow them. If gold is rising, unexpected events will tend to give it an extra kick; if it's falling, they'll weigh it down. Its haven status is like the fairies in Peter Pan: It only exists as long as people believe in it. When, as in the late 1990s, people don't buy the sanctuary argument, the effect disappears.

Gold Rush
Investment funds' net long position in Comex gold futures is at its highest level in records dating to 2006
Source: Bloomberg

The Peter Pan argument is actually the stronger case for the metal at the moment, because many people still appear to believe in its refuge status. Investment funds' net long position in Comex gold futures rose last week to the highest in records dating back to 2006, and movements in the price of spot gold over the past five months have been eerily similar to the likelihood of a Leave victory, based on opinion polling.

Ups and Downs
The price of gold has been moving in the same direction as Brexit sentiment this year
Source: U.K. Polling Report, Bloomberg calculations
Note: For gold, Jan. 1, 2016=50. Leave poll average shows simple average of percentage picking "leave" in most recent five polls, excluding "don't know" and "will not vote" responses.

There's a risk for gold bulls in that wall of sentiment, though. Central bankers, electronics manufacturers, jewelry buyers and the sorts of people who keep bullion and krugerrands in their safes are reliable buyers of gold year-in, year-out.

The investment funds and ETFs that have taken that record net-long position on Comex are more fickle -- and when they think gold's best days are behind it, the selling pressure can make price falls a self-fulfilling prophecy. In every year that the funds have been net sellers since 2013, gold's price slumped.

Who's Buying?
Central banks and ETFs are the marginal buyers and sellers of gold, but jewelry and bullion are the biggest consumers
Source: World Gold Council

Any benefit for gold from post-Brexit vote turmoil will probably be strongest in the short term. Further out, investors are likely to turn their minds to the 50-50 odds of a rise in the U.S. federal funds rate this year, a factor that should make the return-free characteristics of precious metals much less attractive.

If gold holds all its gains this year it will have put in the fifth-strongest annual performance since 1990
Source: Bloomberg

Gold has had a great run in 2016, already putting in gains that would rank as its fifth-best performance since 1990 if maintained until the end of December. But it's traded essentially sideways since the start of March, with a 3.2 percent gain that's underperformed the 9.4 percent rise in the S&P 500. If gold bulls' best hope now is a bout of geopolitical turmoil, the rally really is spent.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. That's even backed up by a 2009 study by economists Dirk Baur and Thomas McDermott, which did find a safe-haven effect in relation to rich-country stock markets. The result was strongest just after highly unexpected events, they found -- not a great description of a Brexit vote that was called three years ago. "Gold can be seen as a panic buy in the immediate aftermath of an extreme negative market shock," they wrote. "More gradual trends in stock markets – weekly or monthly losses – do not appear to elicit the same impulsive response from investors."

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David Fickling in Sydney at

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