The Week Ahead In Gold

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“Brexit” has become a reality. Now what? That is the question being asked by investors around the globe following the historic vote by the people of Great Britain.

 

Things took a dramatic turn late last week from the recent optimism being expressed by investors. Heading into Thursday’s vote, it seemed the “remain” camp had a distinct edge and the U.K. would remain a member of the European Union.

 

Things started heading south quickly on Thursday night as the tallying process got into full swing. Global markets were paying close attention as the results started being compiled, and significant volatility was seen in stock index futures, interest rates, currencies and other markets.

 

At one point Thursday night, the broad market S&P 500 futures contract went “limit down” and trading was halted. The British Pound was heavily punished as well, hitting its lowest level seen in over 30 years at one point. Interest rates fell and crude oil was sold off.

 

Gold and silver, on the other hand, saw heavy buying.

 

By the time the dust had settled in the U.S. on Friday, the S&P 500 had lost over 3.5 percent, the Dow Jones declined by 3.39 percent and the Nasdaq shed well over four percent. Crude oil lost over five percent while the British Pound was slammed for a decline of nearly eight percent (well off of the session lows).

 

Carnage- complete and total carnage- is really the only way to describe much of the price action seen in markets on Friday.

 

The immediate question now is: Is the worst of it over?

 

Probably not…

 

The fear of the unknown is a powerful thing, and the uncertainty surrounding the implications of Brexit are far-reaching. The reality is that no one can say for sure just how this will affect global financial markets. The potential “ripple” effect is already being seen as Scotland is reportedly revamping efforts for an independence referendum.

 

Who will replace British Prime Minister David Cameron?

 

How will the Brexit affect U.S and Canadian businesses in Europe?

 

Will this weaken the European Union?

 

These are just a few of the major questions that investors will be complicating. Unfortunately, the answers to these questions may not come as quickly as many hope.

 

The hard truth is that this process will not take weeks or months, but several years.

 

In the meantime, it is impossible to say just what effects this historic vote will have on the global economy.

 

One thing is for sure, though, and that is that the vote will leave a number of unanswered questions and may add considerable uncertainty to global markets.

 

Investors don’t like unknowns and they don’t like uncertainty.

 

Just look how quickly investors dumped stocks and risk assets and sought the perceived safety of treasuries and gold.

 

Gold saw gains of nearly 4.7 percent on Friday, while silver rose over 2.5 percent.

 

This week could potentially see more panic selling as investors try to gauge the ramifications of the Brexit vote and stocks may remain under pressure as Brexit overshadows any economic optimism. Oil and other risk assets may also see further selling, while treasury yields are likely to remain on the lower side of the ledger.

 

Who knows just how far the British Pound may fall….

 

Gold appears headed for higher ground as investors may seek out alternative assets in which to put capital to work. An increase in market volatility could potentially drive flight to safety buying in the yellow metal, and a significant leg higher in gold could be in the cards. 

Brexit Prevails: Enter the Unknown

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This article originally appeared in Resource World Magazine. 

 

How much change can we see in asset prices in 24 hours? Apparently, a lot as extreme volatility roils the world’s financial markets in reaction to Britain’s decision to vote in favour of exiting the European Union.

 

It was a wild overnight trading session with an immediate impact to UK stocks and their currency…Click here to continue reading.

Brexit: Anomaly or Awakening

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This article originally appeared in Resource World Magazine. 

 

Gold and other safe haven assets have seen strong momentum leading up to the June 23rd ‘Brexit’ referendum when the United Kingdom will vote whether to remain within or exit the European Union. The lead up to the referendum has seen a populist political charade take place in a major Western power. A few years’ prior, these political events were confined to smaller and less economically significant economies, such as Greece. Now, investors are left worrying what the economic significance is of a major economy like Britain questioning their role in the economic union. Furthermore, asset classes such as precious metals, western government debt, and the dollar are showing strength as investors’ hedge the possibility of populism prevailing and upsetting the political status quo.

 

Fundamentally, it makes sense for gold to react positively given…. click here to keep reading.

The Week Ahead In Gold

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The gold market saw some heightened volatility last week as a number of potentially significant issues are driving investor anxiety. While gold finished the week well below the highs, the technical and fundamental backdrops remain constructive and further upside could be in store.

 

Last week’s FOMC meeting was the data highlight of the week, and to no one’s surprise, the Fed elected to hold off on an additional rate hike. While a June hike had been all but completely off the table, odds of a July hike are extremely low and another increase in the Fed Funds rate may not be seen this summer.

 

While many have been quick to blame the May non-farm payrolls report for the lack of action from the central bank, the reality seems to be that there are numerous factors working against the economy currently and that the pace and timing of any additional rate hikes could be even slower than those in the dovish camp originally thought.

 

Of particular note following this FOMC meeting was the absence of language suggesting another hike is imminent as well as another downgrade of the central bank’s economic outlook.

 

The Fed did little, if anything, to provide markets with any further clarity on the potential timing of the next hike. It seems investors will have to just wait and see.

 

In the meantime, investors and global markets will now likely turn their attention to another elephant in the room. The highly anticipated “Brexit” referendum will be taking place this week on June 23rd, and could have far-reaching implications for global markets.

 

The vote has led to increasing risk aversion and markets could get more volatile over the next few days. Investors have shifted billions of pounds out of the UK since the “Brexit” battle began and more capital is likely to be pulled this week as the vote approaches.

 

While it is very difficult to say just how a yes vote could impact global markets, there could potentially be a significant decline in the pound, and equity markets could possibly see selling on a large scale as the uncertainty over such a vote drives investors to the sidelines.

 

Gold could potentially see heavy inflows as market participants seek out alternatives, and silver as well as other precious metals may also benefit from their perceived safe haven status.

 

The gold market did see a large gap higher this past week but surrendered those gains throughout the session as stocks recovered. Gold remains within striking distance of those highs, however, and sitting just below the $1300 level looks poised for another run higher.

 

Given the current state of the global economy along with the wildcard of this historical vote, it is difficult to make a case against higher gold prices. Unfortunately for investors, current economic conditions may simply be a taste of what is to come for some time: Slow growth, negative interest rates, little inflation and more stimulus.

 

In our opinion, this is a great recipe for appreciation in the price of gold and silver and these metals could see steady buying interest as equity markets decline and economic reality sets in. 

The Week Ahead In Gold

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This week could be a pivotal one for the gold market as the bulls will look to build on solid strength seen over the last few trading days. Gold closed the week at $1275.90 per ounce and is within striking distance of the early May highs above $1300 per ounce. Changes in interest rate expectations have been a significant factor in gold’s recent rise, and will likely continue to have a strong influence on precious metals markets.

 

Following the release of the latest nonfarm payrolls data which showed the U.S. added just 8,000 jobs in May, it is difficult to imagine the Fed taking action at their meeting on monetary policy this week. In fact, a June rate hike appears to be completely off the table and odds of a July hike are slim.

 

While Fed Chairwoman Janet Yellen has remained upbeat on the labor market, concerns over its health could now potentially keep the central bank on hold until September or even beyond.

 

Investors will be hoping to get more clarity from the Fed this week at the conclusion of the FOMC meeting. The central bank will likely stick with the same type of approach it has in the past, and will reiterate the idea that any further hikes in interest rates will be data dependent.

 

While the uncertainty surrounding rates is certainly a big issue for investors, there are other issues at work currently that could also keep a floor under gold prices. Expanding global negative interest rates could keep driving investors to hard assets like gold. According to bond king Bill Gross, bond yields are at their lowest level in 500 years. In a recent comment, Mr. Gross referred to $10 trillion of negative yielding sovereign bonds as “a supernova that will explode one day.”

 

Clearly, the current accommodative environment along with expansion of negative yields is bullish for gold, and more investors may seek its refuge.

 

Currency markets could see some significant volatility this week as the “Brexit” referendum approaches and the Fed releases its decision on rates. The dollar index saw a steep decline in the aftermath of the weak May jobs report, and could potentially be gearing up for a retest of the May lows.

 

A breakdown in the dollar below those lows could possibly see a fresh and significant leg lower in the greenback. Recent weakness in the dollar has likely been a large factor in gold’s rally and further downside in the currency could be the fuel that lights the fire of a much larger scale rally in gold.

 

Stocks may be closely scrutinized this week as well, as the broad market S&P 500 has backed away from previous all-time highs. While stocks remain at lofty levels, they have yet to mount a significant attempt at an upside breakout. A breakdown, on the other hand, could potentially send investors running for the exit signs and could drive further buying in perceived safe havens such as gold and silver.

 

Markets may see some quiet ahead of the Fed this week, with the potential for volatility as the FOMC meeting conclusion approaches and in its immediate aftermath. In spite of some possible short term volatility, gold appears to be positioned for further upside and seems to have many key global issues working in its favor.

Regressive Economic Policies

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It says a lot about the state of the world economy when ideas dictated through extreme political leaders have populist appeal to them, and are what is driving the promotion of regressive economic policies. How these ‘populism ideals’ are beginning to trump (no pun intended) simple textbook economics paints a rather alarming picture. Certainly this is nothing new. We saw the emergence of this theme at the beginning of the European Sovereign Debt Crisis in 2011, but this nonsensical populism was taking place in what are relatively smaller and, without offence, insignificant economies, (such as Greece), to the world. Then, it was more a story of shock than significance. It’s unfortunately a theme that has gathered momentum.

 

What started in Greece then spread to bigger countries like the PIIGS (Portugal, Ireland, Italy and Spain), and Poland and France. We saw the emergence of far left or far right wing parties where platforms were founded on a sense of nationalism, communism, or religious ideals are gaining support and interest. In some countries, a vote could be split enough ways to keep a somewhat centrist regime in power, others didn’t see the same fate.

 

Now we have two key events in 2016 (one only a few weeks away), that have the ability to shape a real turning point in the direction of the global economy. And the reason for their significance is because this rise in populism from smaller and less significant economies has made its way to the main stage. The first upcoming event is the ‘Brexit’ referendum which takes place on the 23rd of this month. The second is the Presidential election in the United States this November.

 

Regarding Brexit, a first year college student could make a very simple argument for why Britain should remain in the Eurozone. At the most basic of levels the participation in a market almost equivalent in size to the United States makes British consumers better off vis-à-vis more competitive prices when they purchase goods at home. The same works for businesses selling their goods and services to a vastly larger market, saving duties and customs fees. With the instance of less restrictive barriers to trade, there are always losers, but the economy is better off in aggregate and a responsibly managed one compensates losers.

 

Another argument against ‘Brexit’ is the ‘yes’ voters don’t know what they are voting for should Britain leave the EU. Uncertainty plagues their side, as the most common concern is the future of the financial services industry based in London. And on that topic, uncertainty is about all the parallel’s one can draw to a US election, come November, that defies any allusion of normalcy. That’s simply because it’s unfortunately been a story more consumed for entertainment value than anything else than serious political consideration.

 

Some may attempt to just write these two major events of 2016 off as anomalies that will simply fail and go away. We’ll see, but it is highly unlikely. Unfortunately, is clearly a discontent in the perception of the way this world operates is what’s fueling the beast. Populism doesn’t care about right or wrong. And as investors, that’s a problem because markets can become just that much more unpredictable and volatile. Is there an answer? No, but a little diversification always helps.

The Week Ahead In Gold

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The gold market could see some follow through this week to significant buying seen on Friday following a disappointing U.S. Employment Situation report. Fresh buying along with some short covering drove gold prices higher by over $30 per ounce in what could be the beginning of a move back to recent highs or beyond.

 

On Friday, U.S. nonfarm payrolls were reported to have grown by only 38,000 jobs while the unemployment rate registered a reading of 4.7 percent. To put this reading into context, consensus estimates were looking for an increase of about 158,000 jobs in the month of May.

 

While the unemployment rate did decline, it declined not from American workers finding jobs but rather from more people leaving the workforce.

 

Any way you slice it this report was a significant miss and calls into question the Fed’s plans for the next hike in interest rates. While the central bank had recently sounded more hawkish (which was perhaps in an attempt to prepare markets for a June hike), they will likely have to take a wait and see approach. Odds of a July hike appear to be significantly lower at this point, with the next rise in rates coming in September or even beyond.

 

Investors will be paying very close attention to the domestic data stream over the coming weeks, looking for any further clues as to the timing and pace of additional hikes. Global economic data is also likely to be closely scrutinized, and any further weakness out of China in particular could weigh on investor sentiment and global equity markets.

 

While stocks were lower on Friday following the jobs report, equities may still attempt a push to previous all-time highs. Higher stock prices have been a drag on gold prices, and equities could potentially be on the verge of a retest of last year’s highs. On the other hand, a failure of stocks to mount a significant challenge of those highs could potentially drive investors to take profits and put capital to work elsewhere.

 

With uncertainty surrounding the pace and timing of another rate hike and the upcoming

 

“Brexit” referendum, stocks and risk assets could potentially experience increasing volatility in the coming sessions. As investors get more anxious, perceived safe havens like gold and silver could potentially attract more capital inflows.

 

Finally, precious metals investors will be watching the currency markets this week.

 

Following a false breakdown below key support early last month, the dollar index had been trending higher as interest rate expectations were in a state of flux. With Friday’s jobs data all but eliminating the chances of a June hike, the dollar index plunged, falling over 1.6 percent.

 

This sharp decline in the greenback could potentially send the dollar index back to last month’s lows. A breach below the lows of early May could be very significant. Looking at the bigger picture, a drop below the 92 area on the dollar index could, from a technical standpoint, drive more selling in the dollar.

 

Any dollar weakness could be a significant bullish catalyst for gold, silver and other precious metals. Following Friday’s dismal labor data, investors may be quick to sell the dollar if additional key data points disappoint.