HSBC Report Says Gold Could Rally 10%

Gold was able to stay above the $1300 price level over the weekend as traders prepare for the “big” UK referendum on Thursday. On Monday morning speculators took advantage of the rally and sold off to book profits. Gold is currently at 1288.25. No one is sure what the outcome of the vote will be or of the ramifications to the Eurozone and the UK economy with either outcome. For sure a vote to remain will have less impact, but traders are beginning to move to safety as the LEAVE camp seems to be gathering momentum. What is unsure of is the turn out from silent voters those expressing little public opinion. It is thought that these unspoken groups are in favor of simply holding the status quo and this could change the numbers on voting day. Gold traded as high as $1318 last week but could not hold gains.  Investors are divided between the yen and precious metals for safety. Silver is trading at 17.5415 down 92 points in future trading moving opposite of gold along with platinum which is down $7.35 at 970.95.

 

The US Fed last week stayed pat on interest rates, although we did expect Fed to at least prepare the markets for rate hike in July/September. On the contrary, the Fed was extremely dovish. It indeed portrayed a cautious stance and signaled lack of confidence on the economy by lowering long-run economic projections and hinting at a less aggressive tightening cycle.
[wibbitz]be69a617c714d4d34bc420f988e1f1acd[/wibbitz]

 

The Fed admitted that the pace of improvement in the labor market has slowed, but counters this with the observation that growth in economic activity has picked up. If the Fed is right and the US is able to record around 2 per cent growth this year, it will surely lead to a hike in policy rates and, as always, start preparing the markets well ahead of a rate hike. Logically this should be positive for the dollar.

Gold prices hit a near two-year peak last week as investors sought the haven commodity on fresh fears Britain would vote to leave the European Union in a looming referendum. The commodity soared as new polls showed a rise in support for Brexit ahead of this week’s referendum, adding to concerns over the global economic outlook.

With the EU referendum outcome too close to call, investors piled into safe haven investments, notably gold, the yen and German government bonds, seeking financial protection in case Britons vote to leave.

For the first time in history on Tuesday, investors accepted negative returns for the privilege of owning rock-solid German government 10-year bonds, known as Bunds. Meanwhile, the Bank of Japan, the Bank of England and the US Federal Reserve all kept interest rates unchanged this week– but all three institutions cited the British referendum as a source of global unease.

 

“The current high level of risk aversion among market participants, as evidenced for example in falling stock markets and a firmer US dollar, is continuing to drive up the gold price,” wrote Commerzbank analysts. “No doubt it is also profiting from the low interest rate environment,” they added.

Gold rose on Friday after registering its biggest one-day fall since May 24 in the previous session, supported by a softer dollar and headed for a third straight weekly gain.

According to an HSBC report, if the UK votes to leave the European Union on June 23, the price of gold could rally by 10% to around $1400 an ounce as investors look to the yellow metal to provide a safe haven in times of uncertainty. What’s more, gold could also benefit from the reluctance of investors to move into sterling or even the euro following a ‘leave’ vote.

HSBC’s view is based on the thesis that gold will benefit from the flow of funds after a ‘leave’ vote as the uncertainty spurred by an exit vote would likely elicit sufficient gold purchases to buoy prices. In times of uncertainty, gold is the go-to haven asset for most investors and this time around is unlikely to be any different.