Gold Price Climbs on EU Turmoil

June 27th, 2016 by

pile-of-gold-rallyGold prices are higher this morning, in spite of a sharply stronger dollar.  Spot gold opened $11 higher in Asia, and was soon hitting the $1335 mark, up $20. Prices fell before the New York open to test resistance at $1322 an ounce, before returning to the $1325 range.

Safe haven demand in Europe are supporting both gold and the greenback. The dollar is up 1% this morning against a basket of currencies. The British pound is trading at new 31-year lows around $1.31, down nearly 3.5% against the dollar. The euro is being dragged down by the pound, trading over 1% lower on the dollar.

This is leading to bank stocks getting pummeled for a second day in the UK and EU, and crowds rushing into government securities. The yield on the 10-year gilt in Britain fell under 1% for the first time ever, at 0.931%. The 10-year German bund continues to give a negative yield, trading this morning at -0.08%.

First support for gold this morning rests at $1,322. then Friday’s spot close at $1315. Resistance is seen at $1335, then $1340.

The fall in the pound continues unabated this morning, even as the Bank of England pledges £25 billion in emergency liquidity to the financial market. Speculation is growing that the Brexit vote will force the BoE to cut interest rates next month. If this does happen, it is very improbable that the Fed will be able to raise rates in the US. Unless conditions reverse in a big way soon, Fed Chair Janet Yellen may not see a US interest rate hike before she retires.

German Chancellor Angela Merkel called an emergency meeting regarding the Brexit turmoil with the leaders of the other two largest EU economies today, French President Francois Hollande and Italian Prime Minister Matteo Renzi, along with European Commission President Donald Tusk.

sell-stocksStocks in Europe and the US are sharply lower again today, with bank stocks especially feeling the pain. The Dow is trading 250 points lower this morning, after losing 611 points Friday for a loss of 3.39%. The S&P fell into the red for the year, dropping 3.6%, while the Nasdaq lost 4.12%. Friday was the worst day for Wall St. in the last ten years.

Fears of a cascading “Lehman Moment” among the largest banks had central banks quickly coming together Friday to pledge emergency liquidity for the global financial market. That evaporation of liquidity as demand surged for dollars Thursday night and Friday drove borrowing costs on Wall St to three-month highs.

Crude futures are down more than 2% this morning, after suffering a 5$ drop on Friday. News from Baker Hughes that the US oil well count fell by seven to 330 had little chance of changing the direction of the market, as traders bet that the Brexit would cause a global economic slowdown that will reduce oil demand.

gold_bull_upGold futures saw huge gains Friday, especially in pound and euro terms. Prices were above £1,000 (+21%) intraday, the highest in three years. Prices were up as much as 13% in euro terms. On the COMEX, gold futures saw the second-heaviest day of trading ever. Nearly 577,000 contracts traded, representing 57.7 million ounces and $76.3 billion.

Spot gold closed at $1315.60 an ounce, up $59.30 (4.72%). It’s a topsy-turvy world when you can be disappointed at numbers like that, but gold was trading as high as $1360 an ounce near midnight, as the realization that the “Leave” side was winning the Brexit sank in and a panicked stampede for gold commenced.

Fears that the leftist, Euroskeptic Podemos party would gain more seats in Sunday’s elections in Spain did not come to pass, as they ended up with the same number of seats that they won in December — 71 seats. The ruling conservative People’s Party, headed by Prime Minister Mariano Rajoy, gained 14 seats for a total of 137. That is still short of the 176 needed for a majority, but strengthens the PP’s position when forming a coalition government. It also quells fears throughout the EU of a sudden “Spexit” following on the heels of Brexit, which could have let to a dissolution of the EU.

Speaking of Brexit, disenchantment with the leaders of the winning “Leave” campaign is rapidly growing, as Boris Johnson and Nigel Farage are already admitting that they sold voters a bill of goods.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product