Gold in Asia on Monday continued last week's gains on the surprise Brexit vote for the U.K. to leave the European Union with investors awaiting any cues the next move by Britain and possible policy responses by Japan which has seen the yen soar in response to safe-haven demand.
In the week ahead, market volatility is expected to remain high after global stocks saw more than $2 trillion wiped off their value on Friday and the pound fell by as much as 10% amid the fallout from the Brexit vote.
Federal Reserve Chair Janet Yellen is due to speak at an ECB central bank conference in Portugal on Wednesday, with investors looking for indications on how Brexit will alter the outlook for the U.S. economy and the path of interest rates.
The U.S. is to release revised estimates on first quarter growth on Tuesday.
If you thought you were tired of talking about Brexit before the actual referendum, buck up because the conversation is just heating up.
Early Friday, as the “leave” side was in complete control of Thursday’s referendum, gold prices shot to $1,362.60 an ounce, its highest point since March 2014. Since then, prices have come back but August gold futures are still holding onto significant gains as it prepares to close its fourth consecutive week in positive territory, with prices above $1,300 an ounce. August gold settled the week at $1,322.40 an ounce, up almost 2.3% on the week.
According to reports, gold’s nearly 8% rally overnight was its biggest swing since the 2008 financial crisis.
Although the referendum is over, analysts expect that markets will continue to digest the results next week and try to determine the impact a Brexit will have on the global economy.
“This is not going to settle down anytime soon,” said Ole Hansen, head of commodity strategy at Saxo Bank.
Although the referendum passed, analysts agreed that it is important to realize that the ball is now in the politicians’ court and nothing moves fast in government. In other words, the U.K. will have two years to work out its EU exit plan so analysts expect the political rhetoric to continue for a while.
Adrian Ash, head of research at Bullion Vault, said that the company has seen “crazy” demand from its U.K. clients as they have bought a combined total of £1 billion in gold bullion. U.K. residents now hold more gold than “most of the world’s central banks, and more than all but the world’s 11 largest ETPs,” he said.
Twenty-two analysts and traders took part in a survey of market professionals. Sixteen, or 73%, said they were bullish. The lower and neutral camps each drew three votes, or 14%.
Meanwhile, this week’s Kitco’s online survey received 470 votes. A total of 290 respondents, or 62%, said they were bullish for the week ahead, while 126, or 27%, were bearish. The neutral votes totaled 54, or 11%.
In last week’s survey, 65% of market professionals and 80% of retail investors were bullish. This was the third straight week both camps looked for higher prices, and for the third straight week they were right.
“Gold prices should continue to rise next week as markets digest the uncertainty surrounding the U.K.’s exit from the European Union,” said Henry To, analyst at CB Capital Partners. “The political process will take at least two years to negotiate, but the U.K.’s exit from the European Union may trigger the beginning of the wholesale disintegration of the European Union, and perhaps even of the euro currency as well. Traders are going to start discounting such a scenario even if ultimately policymakers keep everything together. Uncertainty and fear will continue to rise, which should support gold prices next week.”
Daniel Pavilonis, senior commodities broker with RJO Futures, also looks for further gains on ideas that global interest rates will go deeper into negative territory in parts of the world.
“There is going to be a lot of investment in gold as another currency just to get out of the system,” he said. This likely will also lead more speculators into the long side of the gold-futures market, he continued. “I think we can see a scenario where the dollar stays strong but gold continues to move higher too.”
“I see gold falling over the next week as the over-reaction to the Brexit vote has spurred gold too high,” said Bob Tebbutt, partner at Amour Asset Risk Management.
Adrian Day, chairman and chief executive officer of Adrian Day Asset Management, says gold “will likely pull back a little after the post-Brexit surge, but after a test of $1,300 on downside and a consolidation, up again. So we certainly would not try to play any short-term weakness, but use (a) pullback to buy.”
George Gero, managing director with RBC Wealth Management, said that $1,300 presents a major strike price for the options market and there could be a battle around this area Monday as it is options expiration day.
On the upside, some analysts noted that a break above $1,355 could leave gold to a test $1,400, which has been on the radar since the start of the month.
Reference: KITCO, Investing
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