Gold Hits 4-week High as Cenbank Meets and Brexit Vote Shakes Stocks

Published: 13 June, 2016 12:03

Gold hit its highest since mid-May today, Monday (June 13), driven higher by a retreat of the dollar and as stocks were knocked by rising risk aversion before key central bank meetings this week and a June 23 vote on whether Britain should leave the European Union.

The pound fell to a two-month low against the dollar, pushing gold denominated in sterling to its highest in nearly three years at 909.83 pounds an ounce, up 1.9 per cent.

Spot gold was up 0.8 per cent at $1,283.66 an ounce at 09.40 GMT, off an earlier peak of $1,284.50. U.S. gold futures for August delivery were up $11.10 an ounce at $1,287.00.

Fading expectations for a Federal Reserve rate hike have driven prices sharply higher so far this month. Gold has rallied 6 per cent since U.S. payrolls data for May came in weaker than expected on June 3, crushing expectations for an interest rate hike over the summer.

Two Factors Benefitting Gold

“Following the labour market report a Fed rate hike has been priced out for June and July, and at the same time it seems as if odds for the UK to leave the European Union have come back up again. Those two factors are benefitting gold,” said Danske Bank analyst Jens Pedersen.

Fears Britain is on the verge of voting to leave the European Union next week spread through global financial markets on Monday, sending Asian and European shares sharply lower. The dollar fell 0.2 per cent against the euro.

The Fed, Bank of England, Swiss National Bank and Bank of Japan will all meet this week, and are expected to hold monetary policy steady against a backdrop of caution about the global economic outlook as well as the impact of a possible Brexit.

Gold the Ultimate Barometer

“The UK referendum on EU membership has implications across many asset classes but gold, as the ultimate barometer of financial and economic tension, is currently the asset class showing one of the highest levels of sensitivity to the possible range of outcomes. Gold has fluctuated in line with the Brexit opinion polls, even dislocating it from its usual primary-link with the U.S. dollar,” Citi said in a note on Monday.

Holdings in the world’s largest gold-backed exchange-traded fund, SPDR Gold Shares, rose 0.74 per cent to 893.92 tonnes on Friday (June 10), the highest since October 2013.

Among other precious metals, silver was flat at $17.31 an ounce, while platinum was up 0.5 per cent at $995.22 an ounce and palladium was 0.7 per cent higher at $546.79 per ounce.

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