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Gold surges after Brexit becomes reality

2016-06-25


   

With Britain voting to exit the European Union, we expect to see strong and sustained inflows into the gold market driven by the staggering level of protracted uncertainty that investors now face. The gold price surged to US$1,313.85/oz this morning, up 6% from yesterday, providing investors with a much-needed safe haven. Sterling is trading at a 31-year low and world equity markets have plummeted.

The Bank of England has said that it stands ready to take whatever action is necessary, a mantra that is likely to be repeated by other central banks. In practice, this could mean interest rates move further into negative territory in parts of the world, another positive for gold.

Central bank action has already capped the gain in other safe haven assets, with the Swiss National Bank intervening early this morning.  Gold surges as Brexit becomes reality the gold price surged to US$1,313.85/oz this morning, on the AM LBMA Gold Price, up from US$1,265.75/oz the day before, and the highest level since 2014.  It traded as high as US$1,358.54/oz in Asian trading hours, as news of a likely Leave victory started to emerge.

This has had a positive impact on gold miners, too: UK listed gold miners were up 10-20% this morning.World Gold Council Gold’s performance vis-a-vis other assets has been even more impressive. Sterling has fallen to a 31-year low against the dollar and world stock markets have tumbled. The FTSE100 and Euro Stoxx were down 5% and 10% respectively this morning at the time of writing.

The quote on Brexit to be attributed to Sunil Kumar Sinha, Principal Economist, India Ratings & Research says:

“As the outcome of referendum on Brexit is in favour, the impact is felt across the globe. However, from India’s perspective Brexit will have both positive and negative impact. As Brexit will vitiate the already uneven and fragile global recovery, it will exert downward pressure on global commodity prices and India will benefit being a net commodity importer. However, with risk rising in the global financial market foreign capital will flow out putting pressure on rupee to depreciate and making Indian financial market volatile. A number of Indian corporates having exposure to Europe/UK either through trade or in case their production units are located there would be adversely impacted.”