Gold Rally Isn’t Over as Traders See Lasting Brexit Gain: Survey

Brexit Fallout: Gold Rises Most Since 2008
  • Bloomberg survey of analysts, traders pegs gold at $1,424
  • Odds of U.S. rate increase drops to 1.9% through November

The fallout from the Brexit vote will mean even more gains for gold, which already surged to a two-year high on Friday as the world grappled with the economic impact of the U.K.’s exit from the European Union.

Prices could reach as high as $1,424 an ounce by the end of the year, according to the median of 12 forecasts in a Bloomberg survey of analysts and traders from New York to London conducted on Friday. That would be the highest since August 2013 and a gain of more than 7 percent from where the metal is trading now. Estimates in the survey ranged from $1,375 to $1,600.

Before the U.K.’s vote on Thursday, central bankers had been sounding the alarm that an exit from the EU could be disruptive to the global economy. Federal Reserve Chair Janet Yellen cited Brexit “consequences” as among the factors that went into the decision to keep interest rates unchanged at a policy meeting this month. Traders are now pricing in a 1.9 percent chance that borrowing costs will rise through November. Low rates are a boon to gold because it increases the metal’s appeal as a store of value.

Gold futures for August delivery rose 4.7 percent to settle at $1,322.40 Friday on the Comex in New York, after rising as much as 7.9 percent to $1,362.60, the highest since March 2014.

Here are comments on gold’s outlook compiled through the survey and analyst notes:

* “The Brexit-referendum lowered the probability for an interest-rate hike in the U.S.,” said Thorsten Proettel, a commodity analyst at Landesbank Baden-Wuerttemberg in Stuttgart, Germany, who raised his gold forecast for the third quarter to $1,350 from $1,300 after the results of the referendum. “Without that burden, the price of gold has more potential to increase,” he said in an e-mail.

* “Obviously a Brexit vote increases risk in financial markets, risk aversion for investors, risk aversion for lending and all these other factors,” Jason Schenker, president and chief economist of Prestige Economics LLC in Austin, Texas, said by telephone. “The dollar is likely to fall later in the year when we see the U.S. likely slide towards a recession and the Fed move completely away from tightening monetary policy and begin to look at further accommodation. That’s how you could end up in the $1,400 to $1,500 range for gold.”

* “In the near-term, we expect safe-haven demand to support gold prices,” Georgette Boele, an analyst in Amsterdam at ABN Amro Group NV, said in an e-mail. “Markets will likely also adjust downwards expectations on the Fed, which is positive for gold and other precious metals. Our target for the end of June $1,350 and end of December $1,370 for gold prices. It is likely that prices go beyond that.”

* “Due to the Brexit vote and upcoming U.S. election, I see no reason why or how the Fed will raise rates, and I see gold trading north of $1,600,” Bob Haberkorn, a senior market strategist at Chicago-based RJO Futures, said by e-mail. “A Fed rate hike would be bearish gold and I don’t see any chance of a rate hike at this point.”

* “I see a short-term target of $1,400 an ounce and, within that context, a potential spike up to $1,450,” Charles Gibson, sector head of mining at London-based international equity researcher Edison Group, said by e-mail. “In the event of additional shocks (e.g. bank failures, renewed financial crisis, reduced western world interest rates, a violent hurricane season, Donald Trump winning the U.S. November election, a further fracturing of Europe and renewed crisis in Greece and potentially taking in Portugal, Spain, Italy and France etc.), I think that it could hit $1,580.”

* “While this situation is definitely fluid and a number of factors will dictate the price direction in gold from here, at Long Leaf we feel that $1,450 is reachable upon a few of these factors coming in favorably for gold,” Tim Evans, the chief market strategist at Chicago-based Long Leaf Trading Group, said in an e-mail. “The next concern that is on the horizon is a new secession vote for Scotland. If momentum builds for this, we could see another exponential move higher in gold.”

* “We expect gold to reach $1,400,” analysts at Societe Generale SA including Michael Haigh and Robin Bhar wrote in a note. “The heightened market uncertainty will prompt investors to seek safe-haven assets, benefiting gold and the rest of the precious metals. While, arguably, some of this uncertainty has already been priced in, there is likely much more to come.”

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