As Brexit, trump multiply global risks, gold seen at $1,400

London (May 18)  Gold has soared in the opening months of 2016 as investors second-guess a wary Federal Reserve. A thicket of risks from the UK’s Brexit vote next month to the US presidential election may lift prices even further by year-end, according to Denmark’s Saxo Bank.

“It’s not just one risk right now,” said Head of Commodity Strategy Ole Hansen, who predicts bullion may jump to as much as $1 400 an ounce this year. “We have got several risks, so when you start adding them up, it could be that additional risks will sway some investors to add exposure to gold or maybe revisit gold,” Hansen said in a phone interview on Tuesday.

Bullion has rallied 20% in 2016 as US central bankers debate whether to raise borrowing costs, while their counterparts in Japan and Europe press on with negative rates. The rebound following three years of declines has led to billionaire George Soros and Eton Park Capital Management joining the investors piling into bullion. Now attention is shifting to the June 23 vote in the UK that’ll dictate whether the country remains in the European Union.

“The outcome is by no means certain yet,” said Hansen, who’s covered gold and precious metals since 1999 and is based in Hellerup, a Copenhagen suburb. While the dollar may win out initially after a vote to leave, that decision could call into question the future of what Hansen termed the euro project over years to come. That “may leave gold in a good position,” he said.

Spot gold was at $1 274.17 on Wednesday after rising to a 15-month high of $1 303.82 on May 2. It’s the best performing major metal this year after silver on the Bloomberg Commodity Index, with holdings in exchange-traded funds jumping 25%. Hansen said the Fed will probably be able to hike only once in 2016, which wouldn’t have much of an impact on prices.

Saxo Bank isn’t isolated in its assessment of potential risks. German bank Joh. Berenberg Gossler & Co has said it plans to increase gold holdings, betting demand will be lifted by uncertainty surrounding the outcome of the UK vote and the US election. In Asia, while Singapore-based Oversea-Chinese Banking Corporation’s economist Barnabas Gan remains bearish on gold, he’s revised his year-end outlook higher partly on the back of Brexit concerns.

Conflicting Polls

Right now, the polls are mixed. While an ORB/Telegraph poll this week showed 55 percent of respondents were in favor of remaining in the EU — which helped to boost sterling — another reading from TNS showed a contrary result, with 41% favouring an exit over 38% to stay.

In the US, political maverick Donald Trump has emerged as the presumptive Republican presidential nominee, and he will likely face off against Hillary Clinton. “We have another political uncertainty later in the year with the presidential election,” said Hansen “So these are all just adding to the reasons why precious metals have become the must-haves.”

Source: Bloomberg