Gold Price Slips From Safe Haven Highs After Brexit Shock
New York (Jun 28) Gold retraced some of its recent gains Tuesday as the wave of selling that has gripped financial markets since the U.K. voted to quit the European Union eased.
Spot gold traded 0.77% lower at $1,314.60 a troy ounce in midmorning London trade after two days of gains. The slide came as the pound climbed 0.73% against the dollar to $1.3337, having dipped below $1.32 Monday, and U.K. stocks recovered somewhat, with the blue-chip FTSE 100 index gaining 2.53%.
“Gold has seen a bit of profit-taking, which is not surprising given the run-up on Friday,” said Robin Bhar, head of metals research at Société Générale.
Gold reached highs just under $1,360 Friday after a slim majority of Britons handed victory to campaigners for a so-called Brexit that plunged financial markets and European politics into turmoil.
“Whether this is the calm before the next storm or we’re in for a prolonged period of more stable markets is difficult to tell,” Mr. Bhar said.
With Prime Minister David Cameron due to meet EU officials to discuss the consequences of the referendum, U.K. politics looks set to remain the focus for traders in the precious metal for the time being.
“There are significant questions to be answered and it will be very difficult to provide all the clarity the market wants,” said Xiao Fu, head of commodity markets strategy at BOCI Global Commodities, a subsidiary of Bank of China Ltd.
“From where we are now there’s still upside for gold,” she said.
Analysts at Commerzbank noted that investors in exchange-traded funds who buy physical gold purchased 12.6 tons of the metal Monday, following even larger gains Friday.
“There are many reasons to support a high gold price,” they wrote in a note to clients, citing uncertainty over the U.K.’s negotiations with Brussels and moves by rating companies to downgrade the U.K.’s credit rating.
Mr. Bhar noted that it’s a rare occurrence for Westminster politics to take center stage in the gold market.
“It doesn’t happen often—the U.K.’s influence in financial markets and economic developments is fairly minor compared with the U.S., China and the EU as a whole,” he said.
Previous episodes included a program of gold sales that began in 1999 under Gordon Brown’s Labour government and the U.K.’s violent ejection from the European Exchange Rate Mechanism in 1992, he said.