The price of gold soared in the wake of the Brexit vote, going as high as $1,350 on Friday before settling back slightly. As of the Monday morning after the vote, the yellow metal was up more than 5% from its close Thursday before returns started coming in.
The spike in price of gold after the shock of Brexit isn’t surprising, but many analysts say the bull run will likely continue.
The UK’s decision to exit the EU caught the mainstream off guard. Most analysts had predicted the stay vote would carry the day. Unsurprisingly, startled stock markets sold off and gold rallied when it became clear the pundits were wrong. Of course, historically investors turn to safe-haven assets like gold and silver in times of turmoil, so a spike in the price of gold is exactly what you would expect. Naeem Aslam, chief market analyst at Think Forex in London, called gold the “real winner” in the Brexit vote.
But there are indications that a lot more factors than just short-term, knee-jerk safe-haven buying are pushing the price of gold up. That means this may be more than a reactionary spike in the market. A recent MarketWatch article made the case for $1,500 or even $1,900 gold in the next year or so:
The decision, known as Brexit, has vast implications for global financial markets, economies and currencies as well as for monetary policies among the world’s major central banks. That means gold could soon have many more reasons to rally.”
David Beahm, chief executive of Blanchard and Co., said the Brexit could mean long-term growth for gold:
The market’s fearful reaction has made Brexit the most stressful event investors have seen since the Lehman Brothers bankruptcy in September 2008. This is a major negative for global markets, and gold is positioned for long-term price growth because of … the Brexit vote and other negative global financial conditions.”
Ned Schmidt, editor of the Value View Gold Report, said he expects gold to continue its climb toward $1,400 an ounce with the price eventually pushing past $1,900 in the next year.
Brexit is a once-in-a-lifetime event. All arguments against holding gold have now been crushed.”
One major factor will be central bank response to the Brexit. Immediately after the outcome became clear, central banks were already promising to “provide more liquidity.” Chris Gaffney, president of EverBank World Markets, called this the “biggest risk to markets right now.” He said there’s a lot of speculation about an interest rate cut in the UK and that the European Central Bank may take rates even deeper into negative territory. He also said the Brexit will “definitely make it very difficult for the [Federal Open Market Committee] to raise [interest] rates this year.” This all means lower rates for longer. That’s good for gold.
But it’s not all about Brexit. Despite what the pundits and politicians keep saying, the US economy is in a mess. Peter Schiff thinks that’s probably an even bigger reason to expect gold to continue its climb. In his most recent podcast, he said while the Brexit was a catalyst that sparked a gold rally, it didn’t cause the gold rally. In fact, Peter thinks gold would have eventually gone up no matter what UK voters decided. After all, gold has been one of the best performing assets all year. The fundamentals driving that remain in play. True, it did sell off a bit over the last few weeks. But as Peter pointed out, that was largely because people thought Brexit wouldn’t happen. The UK’s decision to leave the EU is just one more layer of uncertainty in an economic environment that was already unstable.
I think this is a good breakout in the price of gold, and I think we’re going to see a whole lot more upside in the days and weeks ahead.”
Courtesy: Samuel Bryan
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