Will Gold Prices Rise After the Brexit?
New York (Jun 18) There's just no other way to say it – gold prices have been on an exciting rally this month. What's been driving the gold price recently is the fear trade. I know this because it's not just gold that's been gaining.
We've seen the price of gold, silver, the U.S. dollar, and sovereign bonds all move higher over the past week. At the same time, we've seen global stock markets take it on the chin.
Everyone was initially buying safe-havens like gold and silver due to fear of a possible rate hike at the June FOMC meeting. But even though the Fed left rates unchanged, the dollar kept moving higher.
And the rising dollar is mostly thanks to the Brexit vote next Thursday, June 23, when Britain will vote on whether to stay or leave the EU.
Today, we'll discuss the Brexit's potential impact on gold prices moving forward.
First, here's a recap of gold's gains this week, including the metal's insane performance yesterday…
Why Gold Prices Are Set to Gain 1.5% This Week
The price of gold kicked off this past trading week on a strong note. After rallying above the $1,280 mark in early morning trading, gold prices settled at $1,284 for a gain of 0.6% on the day.
On Tuesday, June 14, the gold price maintained the previous session's gains despite the start of the two-day FOMC meeting. It added 0.2% to settle at $1,286.
But the real action began the next day when the Fed announced it wouldn't raise interest rates. After a bit of sell-off in early morning trading, gold prices exploded above the $1,290 level once the announcement came out. Prices ended up posting a 0.5% gain and closed at $1,292.
Since the dollar and gold typically move in opposite directions, this chart shows how the U.S. Dollar Index (DXY) has trended over the last five days…
On Thursday alone, the DXY managed to cover a range between 94.36 and 94.46. That massive 110-basis-point fluctuation shows how jittery the markets have been lately.
Interestingly, the gold price moved alongside the DXY, which typically doesn't happen in the short term. Unfortunately, that meant gold prices followed the dollar downward in late afternoon trading. The metal eventually fell 1.1% to close at $1,278 on the day.
The weakness continued through to this morning. As of 10:05 a.m., the gold price today (Friday, June 17) is down 0.3% to $1,295. That puts it on track for a weekly gain of 1.5%.
While the Fed meeting was a big influence on gold prices this week, the UK referendum next week will have an even bigger influence.