Gold Buoyant on Prevailing Brexit Uncertainty

 

Despite of easing global risk aversion, Gold rose on Wednesday as uncertainty over the political and economic implication of Britain’s vote to exit the European Union now seems to weigh on investor sentiment and is boosting the metal’s safe-haven appeal. Spot prices rose to $1320 after dropping to $1305 in the previous session, recording a third session of gains in the previous four.

Moreover, signs of stability in global financial markets now seem to push back investors’ flight to safety, driving the US Dollar lower and benefiting dollar-denominated commodities – like gold. The precious metal, however, is still down around 3% from more than two-year high of $1358 touched on Friday when the so-called Brexit triggered turmoil in global markets.

Uncertainty to extend support

The ongoing short-covering rally in riskier assets – like equities, might be capped on the back of long-term uncertainty over the procedure of leaving the European Union once the UK evokes article 50. Market participants look for clarity over the UK’s relationship with EU countries after completion of the exit process.

Another big threat faced by markets currently is the possibility that other Euro-zone members might come-up with their own version of referendum in the near-future, which further fuels uncertainty over existence of the European Union.

Adding to this, the Federal Reserve governor Jerome Powell on Tuesday said that the Brexit vote might now act as an additional barrier to the US economic recovery. Some experts also predict that the prevalent uncertain environment could have further ramifications and hinder global economic growth.

Uncertainty now seems to overshadow economics and is benefiting bullish momentum for the yellow metal. Investors tend to invest in gold during times of political or economic uncertainty in anticipation of a better return during turbulent market conditions.

Technical outlook

Bulls are likely to get further boost should the momentum lift the metal above $1325-30 immediate resistance. A clear break through this immediate resistance should set the stage for a retest of Brexit led swing high level of $1358. Sustained momentum above $1358-60 area now seems to attract fresh buying interest that could assist the metal to head towards its next major resistance near $1390 region, marking 2014 yearly high level.

Alternatively, failure to move above immediate resistance, and a subsequent break below $1300 psychological mark support, now seems to trigger a near-term corrective move for the commodity. Below $1300 handle, the metal seems to immediately drop towards $1275 intermediate support before correcting further towards 50-day SMA support, currently near $1260 region.