Gold Under Pressure After Brexit Outcome

Gold’s sharp gains on uncertainty over Britain’s European Union membership are likely to come to an end, regardless of whether Britons vote to leave or remain in Thursday’s referendum.

Prices XAU= hit their highest since August 2014 last week as the $5-trillion a year gold market rose with other “safe” assets, such as German bunds, the Swiss franc and Japan’s yen.

Recent polls suggest an even split and although investors are worried about the economic and market fallout of a “Brexit”, bullion’s uncertainty premium is not expected to last.

An “In” vote is seen as quickly unwinding gold’s five percent gain in June, as appetite for risk rises and focus returns to the U.S. economy, analysts and fund managers say.

“A clear win for the Remain side will see U.S. yields rise as the potential drag on the global economy and risk appetite is removed,” said ICBC Standard Bank analyst Thomas Kendall.

“Gold in dollars would likely drop four to five percent,” Kendall added.

The metal is negatively correlated to rising U.S. real yields because the opportunity cost of holding it increases.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza