Gold Under Pressure as Markets Counting on UK Remaining in EU

Gold remains under pressure on Wednesday, as the metal lost ground before recovering. On Tuesday, gold lost 1.4% of its value, dropping below the $1270 level. The sharp drop was in response to market sentiment that the UK will vote to remain part of the European Union. On the release front, it’s a quiet day. Existing Home Sales improved to 5.53 million, matching the estimate. Crude Oil Inventories posted another decline, coming in at -0.9 million. On Thursday, the US releases unemployment claims, and Britons go to the polls to vote in the EU referendum.

With just one day left until the Brexit referendum vote in the UK, the campaign between the “Leave” and “Remain” camps is going down to the wire, so we could see further volatility in gold prices. Will the UK vote to stay in the European Union, or go it alone? The stakes are tremendous, as the UK economy of GBP 2.9 trillion is the fifth largest in the world and number two in Europe, after Germany. Polls continue to predict a very close vote, but market sentiment is leading towards the UK staying within the EU. This sentiment has boosted the British pound in recent days against the dollar and the euro. Prime Minister David Cameron and other prominent British personalities have warned that a vote to leave the EU would damage the UK economy, while the “Leave” vote has tapped into voter dissatisfaction with Brussels, particularly concerning immigration. The “Leave” camp also claims that EU over-regulation has stifled British businesses, and point to countries such as Switzerland that have close economic relations with the EU but are not part of the bloc. Still, leaving the comfort zone of the EU would be a journey into the unknown, and analysts predict that if the UK remains in the EU, gold prices could drop sharply.

Janet Yellen appeared before a Senate finance committee on Tuesday, and her testimony was cautious and tentative. Yellen acknowledged that there is room for improvement in economic conditions, saying that “[c]onsiderable uncertainty about the economic outlook remains”. As expected, Yellen provided no hints with regard to the timing of a rate hike, leaving the markets doubtful that we’ll see a rate hike in July. Yellen said she does not expect the US economy to enter a recession, but if such a scenario did occur, the US would not follow Japan and Europe and adopt negative interest rates. On a more positive note, Yellen said that weak oil prices, low interest rates and stronger wage growth should support consumer spending. Yellen continues her testimony on Wednesday before a House financial committee.

XAU/USD Fundamentals

Wednesday (June 22)

  • 10:00 Federal Reserve Chair Janet Yellen Testifies
  • 10:00 US Existing Home Sales. Estimate 5.53M. Actual 5.53M
  • 10:30 US Crude Oil Inventories. Estimate -1.3M. Actual -0.9M

Upcoming Key Events

Thursday (June 23)

  • 8:30 US Unemployment Claims. Estimate 271K

*Key releases are highlighted in bold

*All release times are EDT

XAU/USD for Wednesday, June 22, 2016

XAU/USD June 22 at 12:00 EDT

Open: 1258.98 Low: 1261.16 High: 1270.06 Close: 1268.57

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1207 1232 1255 1279 1307 1331
  • XAU/USD was flat in the Asian session and has shown limited movement in the European and North American sessions
  • 1255 is providing resistance
  • There is resistance at 1279
  • Current range: 1255 to 1279

Further levels in both directions:

  • Below: 1255, 1232 and 1207
  • Above: 1279, 1307, 1331 and 1361

OANDA’s Open Positions Ratio

XAU/USD ratio has shown gains in long positions, following sharp losses by XAU/USD in the Tuesday session. Long positions have a majority (56%), indicative of trader bias towards XAU/USD breaking out and moving to higher levels.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental and macroeconomic analysis, Kenny Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in major online financial publications including, Seeking Alpha and FXStreet. Kenny has been a MarketPulse contributor since 2012.