Gold's Downside Limited Even if Brexit is Defeated

The Brexit vote determining Great Britain’s status as a member of the European Union, slated for June 23, has been widely cited in recent days as the reason investors are displaying preferences for safer assets such as gold.

Applying that logic, it would seem gold exchange traded funds such as the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) would be vulnerable if Great Britain opts to remain in the EU as many market observers expect will be the case.

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Conversely, some gold analysts see bullion’s downside as limited if Brexit is defeated, noting that any near-term retreat induced by the Brexit vote could be a buying opportunity in the yellow metal.

Some analysts still believe that is possible gold ascends to $1,500 per troy ounce. Gold bullion prices have surged almost 20% this year as the Fed previously signaled it would slow the pace of interest rate normalization this year – higher interest rates typically weigh on gold prices since the hard asset provide no yield and would become less attractive to higher-yielding conservative debt assets in a rising rate environment.


“In this [Bremain] scenario, gold would likely be well supported by a number of outside factors. These include the ratcheting down in the number of anticipated Federal Reserve rate hikes since the beginning of the year, the uneven pace of global economic expansion, uncertainty associated with the US election cycle, and other geopolitical risks not related to the UK vote. These factors may well act to buoy gold regardless of the results of the UK referendum,” according to part of an HSBC note posted by Shuli Ren of Barron’s.

Polls show mixed results, with online surveys revealing a much closer result while phone calls have suggested a lead for a remain. Sterling has acted as a barometer of sentiment in the run-up to the June 23 referendum, hitting a seven-year low against the U.S. dollar in February after the date of the vote was announced.