Gold price eyes third weekly gain as Brexit uncertainty helps
New York (Jun 17) Gold rose on Friday, supported by a softer dollar, and was heading for a third week of gains following a cautious note from the Federal Reserve on rates and uncertainty ahead of Britain’s vote on European Union membership.
The metal, often seen as an insurance in times of financial and economic uncertainty, peaked at $1,315.55/oz on Thursday, its strongest since August 2014.
Gold then slid 1% as financial markets reacted to the suspension of campaigning for June 23’s British referendum after a lawmaker was shot dead.
Spot gold was up 0.5% at $1,285.01/oz at 1020 GMT. Bullion has risen nearly 1% so far this week.
US gold for August delivery fell 0.8% to $1,288.20/oz.
"Gold is reverting to its safe-haven role, in a situation where eurozone government bonds are in negative yield territory and investors have fewer safe assets to choose from," Mitsubishi strategist Jonathan Butler said.
"The other major piece of news this week has been the Fed’s downgrade of GDP growth and its unchanged inflation expectations ... all of these factors are supportive of rates remaining low and ... favourable to gold."
Gold is highly sensitive to rising interest rates, which lift the opportunity cost of holding the precious metal.
Sterling-denominated gold rose to a three-year high on Thursday, while the metal priced in euros reached its highest since April 2013, due to the weakening of both currencies against the dollar ahead of the referendum.
The Bank of England escalated its warnings about fallout from the vote, saying it could harm the global economy and that sterling looked increasingly likely to weaken further if "Out" wins.
"Leading into the Brexit vote, we expect gold to remain around current levels between the $1,270-$1,300 range. But after then all bets are off as everything depends on the results of the referendum," ANZ commodity strategist Daniel Hynes said.
The dollar slipped versus a basket of major currencies on Friday, making dollar-denominated assets such as gold cheaper for holders of other currencies.
Reflecting renewed optimism towards gold, holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose to 902.53 tonnes on Thursday, the highest since October 2013.
Silver rose 1.2% to $17.35/oz after falling 2% on Thursday.
Platinum rose 1.4% to $978 and palladium gained 1% to reach $536.70.