The British pound is facing numerous headwinds over the next five years: The possibility Scottish independence, Brexit, and continued strengthening of the dollar. The currency is now trading at a significant technical resistance point that has held since November. If the pound breaches resistance, it could represent the start of the next leg down.
Right now, the pound seems to be toast. British investors may be able to protect their wealth through precious metals. However, gold is also under pressure from U.S rate hikes and investors should weigh all these concerns into their decision.
Currency Shares British Pound ETF (FXB)
The Euro also sees weakness due to economic problems in Greece and concerns about right-wing populist factions such as Le Pen in France. The spread of populism in Europe puts the future of the Euro in Jeopardy, and because there are so many potentially disastrous outcomes for the euro, this currency also looks to be toast.
The United Kingdom can take solace in the fact that if the Euro eventually collapses, Britain will have dodged a bullet. In addition, the mass political uncertainty emanating from the Eurozone will help support precious metals prices going forward and counterbalance many of the bearish pressures coming out of the United States.
Currency Shares Euro ETF (FXE)
Amex Dollar Index (DXY)
British investors are in grave danger of purchasing power erosion if the British pound continues to fall. Despite the challenges gold faces from U.S rate hikes, the metal still presents a good opportunity for investors to protect their wealth in this eroding currency environment. Over the last six months, physical gold has performed significantly better in British pounds vs. U.S dollars. In the coming months, this trend is likely to accelerate.