So, Britain voted to leave the European Union (EU), the British pound got killed, and stock markets around the world are crashing. Many investors are wondering who is profiting from the Brexit and how to invest after the Brexit.
Let’s take a look…
Well, in the currency market, the obvious winners are those who betted against the pound. If you shorted the GBP/EUR pair, you would have profited handsomely because the pound dropped 8.3% against the euro at one point. However, the biggest winners are those who shorted the pound against the U.S. dollar. The GBP/USD pair fell as much as 10%, hitting its lowest level in 31 years.
Imagine going into this trade on leverage; you could have easily achieved triple-digit returns by shorting the GBP/USD pair.
In the global stock markets, pretty much everything is crashing. In Europe, the FTSE 100 dropped 3.2%, the DAX was down 6.8%, and the CAC 40 plunged eight percent. In the U.S., the Dow, the S&P 500, and the NASDAQ were all down by more than three percent by Friday afternoon.
Again, the obvious winners are those who betted against the many stocks and stock indices that plunged so much on Friday.
But you don’t need to be on the short side to profit from the Brexit. As the results from the referendum came out and uncertainty shot through the roof, one unique asset started to shine—gold.
By Friday afternoon, the spot price of gold surged 4.6% to $1,319.58 per ounce. Those invested in gold mining exchange-traded funds (ETFs) also enjoyed sizable gains. Both Direxion Daily Gold Miners Bull 3X ETF (NYSEARCA:NUGT) and Direxion Daily Junior Gold Miners Bull 3X ETF (NYSEARCA:JNUG) surged nearly 20%.
When you think about Britain, the British pound, and massive profits, one person often comes to mind—George Soros. Known as “The Man Who Broke the Bank of England,” Soros reportedly made $1.0 billion by shorting the British pound in 1992.
Fast-forward 24 years and he might have made a bit of money on the Brexit news as well. Earlier this month, The Wall Street Journal reported that Soros Fund Management LLC sold stocks and bought gold and gold mining stocks. Those are exactly the moves that would profit from a Brexit vote result. (Source: “A Bearish George Soros Is Trading Again,” The Wall Street Journal, June 9, 2016.)
But for those who did not catch the profit train this time, are there any investment opportunities left?
The answer is yes. Given what just happened and what could come next, there is one place that could offer some serious upside potential—gold.
The Brexit vote results brought not just volatility in financial markets, but also political uncertainty. British Prime Minister David Cameron announced his resignation. He said he would likely be gone by the time of the Conservative Party conference in October.
And note that while Britain is an island, the world economy is connected. Whatever happens in Britain and in Europe could send shockwaves across the globe.
What this means is that investors would turn to “risk off” mode. In fact, we already saw this flight to safety in the stock market on Friday. As the go-to safe-haven asset, gold is about to shine again.