As global markets plummeted on Friday after the United Kingdom voted to leave the European Union, investors sought shelter where they could find it.
There was a stampede into so-called safe haven assets, including gold, government bonds and certain currencies.
The “Brexit” decision stunned investors around the world, and led to a flurry of overnight trades as people grasped to react to the vote and its potential implications. “The initial flight-to-quality reaction across asset classes has been exacerbated by the market’s misplaced confidence in a ‘Remain’ victory leading up to the vote,” said David Lafferty, chief market strategist at Natixis .
While investors can expect a ripple effect in the U.K. and around the world, few can predict what shape it will take. Investors appear to be pricing in uncertainty related to Prime Minister David Cameron’s decision to leave his post and a potential Scottish Referendum, as well as the impact on companies that are headquartered in the U.K. and do business there.
“Markets do not like uncertainty,” said Dean Tenerelli, portfolio manager for European equities at T. Rowe Price. “The UK is the first member to leave the EU, so there is no template to follow.”
In response to the turmoil, investors pushed the price of gold up more than 4% to $1,315 per ounce on Friday. Shares of gold mining companies like Newmont Mining NEM +5.09%, Barrick Gold and Yamana Gold were also up about 4% each. This comes amid a significant run-up in gold prices this year, with the precious metal up 20% since January, bolstered in part by the Federal Reserve’s cautious approach to additional interest rate hikes.
“Gold could continue to see further support due to its status as a safe-haven asset,” said Jameel Ahmad, vice president of market research at FXTM. “Of course, this would be even more possible if US interest rate expectations do get pushed back as a result of such a shock overnight.”
The Federal Reserve said it was “carefully monitoring developments” in the markets after the referendum vote.
Investors also flocked to government bonds, sending the yield on a 10-year U.S. Treasury down to 1.57% from 1.73% the previous day. The yield could sink all the way to 1.35%, says Goldman Sachs. The yields on government bonds from places like Germany, the U.K. and Japan also fell sharply on Friday.
“We expect government bond yields to fall further, reflecting the associated increase in political and financial uncertainty across the region that the ‘Leave’ outcome will likely promote,” said Peter Oppenheimer, a Goldman Sachs analyst.
As the British pound was hammered, some investors elected to move into currencies they view as safer, like the Swiss Franc and Japanese Yen. “The yen has been the best-performing currency at times of heightened uncertainty lately,” noted Jeff Kleintop, chief global investment strategist at Charles Schwab.
Bitcoin also enjoyed a bounce on Friday, rising 4% to $652.18. Barry Silbert, founder and CEO of the Digital Currency Group, tweeted: “This is bitcoin’s coming out party as a global safe haven investment. Amazing.”