Brexit Effect – Gold Upside continue?

Gold had a calm day as the rest of the global markets stressed. Gold gained as the Asian markets opened but eased back off the gains through most of the day to trade at 1324.45 showing a small gain of $2. Silver actually diverged and traded in the red at 17.76 down 53 points. It seemed the favorite safe haven trade of the day was the US dollar and the yen.
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George Osborne’s efforts to calm the markets over Brexit proved fruitless as more than £40bn was wiped off the value of Britain’s biggest companies, the Press Association reports.

The FTSE 100 Index plunged back below the 6,000 mark, slipping 2.6% to 5,982.2, despite Mr Osborne offering his assurances that the UK is “about as strong as it could be to confront the challenge our country now faces”.

On the currency markets, sterling plunged to a fresh 31-year low of 1.3151, before rallying back to a 3.4% fall to 1.321. Yields on 10-year government bonds also slid below 1% for the first time.

Heavyweight financial stocks, housebuilders and travel firms bore the brunt of the sell-off on the London market, with low-cost carrier EasyJet sitting at the top of the biggest fallers after warning over profits. Shares in EasyJet were down 22% after the firm said it will take a 28 million hit following two months of turbulence and warned that Brexit would have a negative impact on the airline.

Bullion surged 4.8 percent on Friday, its biggest single-day gain since January 2009, as the British exit, or Brexit, forced a selloff in risky assets from industrial commodities to stocks and sterling. The pound and Asian stocks continued to reel on Monday.

Finance minister George Osborne said Britain’s vote to leave the bloc was likely to lead to further volatility on financial markets but said the economy was about as strong as it could be to cope with the challenge ahead.

As it became clear on Friday that the Leave camp was going to pull off an unexpected victory, commodities did what they normally do in a period of heightened risk, they declined. The outlier of course was gold, which also did exactly what it was expected to do by rallying strongly as investors sought the protection of what is still viewed by many as the ultimate safe-haven in times of crisis and uncertainty.

Reuters reported that HSBC said it believes “gold may reach $1,400 an ounce on a ‘safe-haven’ bid generated by the UK vote”. “It is even possible that gold may trade higher longer term if the UK vote creates wider EU concerns.”

Goldman Sachs too has raised its gold price forecasts saying Brexit suggested a more sustainable impact on the trajectory of U.S. interest rates.  According to Macquarie Research: “Gold price will go higher in the third quarter as the full ramifications of Brexit begin to be felt but expect it to fall back in fourth quarter after the U.S. election and as the Fed gets ready to hike again.” It increased its third-quarter forecast to $1,350.

Holdings in SPDR Gold Trust GLD, the world’s largest gold-backed exchange-traded fund, jumped 2 percent to 934.31 tonnes on Friday, the highest since July 2013.