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Gold Prices Hit 2-Week Low as Brexit Odds Shrink to 1-in-4 But Banks Fear Volatility

GOLD PRICES retreated further on Wednesday in London as stock markets rose amid speculation that the UK will vote to stay in the European Union in tomorrow's "Brexit" referendum, writes Steffen Grosshauser at BullionVault.
 
After falling nearly 2% on Tuesday – the biggest 1-day loss in a month – gold prices today touched a 2-week low of $1261 per ounce before trading around $1265 as UK and Asian equities edged higher.
 
Opinion polls still put the "Remain" and "Leave" camps very close, but bookmakers say the chances Britain will choose to leave the EU have shrunk to about one in four according to betting on the Brexit referendum.
 
"With the Brexit vote now less than 48 hours away, participants seem to be positioning for a 'Remain' vote. However, if the 'Leave' does win, there could be a '+3 figure' gain in gold," Swiss refiner MKS Group's trader James Gardiner said in a note, referring to a possible rise of "safe-haven" gold of at least $100 per ounce.
 
Ole Hansen, Head of Commodity Strategy at Saxo Bank, also sees gold being " propelled towards $1400" in case of a Brexit.
 
"In case we see a 'Leave', we probably would see the upper end of our trading range which would be $1,350. But if we see a 'Stay' I think gold will see further uncertainty and may fall back towards the $1,200 level," reckons Dominic Schnider of UBS Wealth Management in Hong Kong.
 
"We expect the re-positioning of investors holding long Brexit-related gold positions will drive volatility higher," added French investment and London bullion bank Societe Generale.
 
However, "the main issue is not the threat of volatility but uncertainty about regulations," summarizes Garry Jones, CEO of the London Metal Exchange, when considering the possible impact of Friday morning's outcome. 
 
Holdings in the giant SPDR Gold Trust (NYSEArca:GLD) rose nearly 0.4% to 912.33 tonnes on Tuesday, the highest since September 2013.
 
Silver, in the meantime, tracked gold and fell slightly to $17.24, unchanged from this time last week.
 
Financial traders expect high volatility in all financial markets going into Friday morning's Brexit result, with major banks warning on possibly poor liquidity and wide trading spreads between buy and sell prices in foreign-exchange to stocks, bonds, commodities and precious metals markets.
 
Bank of America-Merrill Lynch expects a 10% decline in equities if the UK decides to leave the EU. According to billionaire investor George Soros, the same result could trigger a more than 20% plunge of the British pound. 
 
US Federal Reserve chair Janet Yellen was meantime due Wednesday to resume her regular 2-day testimony to Congress, while European Central Bank president Mario Draghi will speak in the European Parliament later today.
 
After the Fed's decision to keep rates unchanged at its latest FOMC meeting, gold prices rose over $100 and reached a 2-year high on 16 June.
 
"All eyes in the gold market are on the Brexit vote," says Thorsten Proettel, a commodity analyst at the German Landesbank Baden-Wuerttemberg.
 
"The odds of an out-vote have come down since late last week. Even rates expectations are taking a back-seat to what is happening in the UK."

Steffen Grosshauser is Senior Operations Executive and Head of German-speaking Market at BullionVault, the worldwide biggest physical gold and silver market for private investors.

See all articles by Steffen here.

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