London Gold Price Hits 32-Month High
BeLEAVE in Britain Says The Sun Newspaper
At the close of the day on Monday, 13 June the Euro Stoxx 50 shed 1.98% to finish at 2,853.52, the DAX ended 1.80% lower at 9,657.44, the CAC 40 was 1.85% lower at 4,227.2, the Ibex 35 ended 2.20% lower at 8,303.80, and the FTSE 100 index was 1.16% lower at 6,044.97. With equities markets so weak, it makes sense that investors are looking for alternatives to preserve their holdings. Naturally, gold is the go-to asset along with government bonds and other fixed interest-bearing investments.
Risk-Off Approach to Equities Markets
Global uncertainty has ratcheted up in recent days, with various shocks hitting the markets. These include the terrorist attacks in Orlando Florida which left scores injured and 49 people dead, poor manufacturing data out of Japan, and the big one – a shift towards a Brexit in the United Kingdom. The confluence of these events has rocked the stability of markets and threatens to derail Q2 earnings for listed companies. The benefit of the recent uncertainty has been gold, as it reached £910 per ounce in London – a 32-month high.
China was particularly bullish on the precious metal, after several days of holidays last week. By the time trading resumed, it was all about gold in China. With respect to the Brexit referendum, the movement in the price of gold earlier in the year was associated with the swing towards a Brexit for the June 23 referendum. Gold was trading in a tight range in April and May, and now the precious metal is on the rise again. The other beneficiary of weak equities markets is the bond market, and bonds have recorded multiyear low yields with rising prices.
Trading The Cable
The GBP/USD currency pair – aka The Cable – has been testing fresh lows for several days now. This week, we can expect further uncertainty in currency markets with the Fed scheduled to deliver its address on Wednesday, 15 June and the Bank of Japan slated to make its announcement on interest rates this week. Sentiment has soured and the GBP has become casualty #1 for the moment.
A currency that is finding favour with traders is the Japanese yen. It hit new highs against the greenback on Monday, 13 June and was trading at 106.07 as the yen clawed its way back. Naturally, the Japanese yen’s strength is a deterrent to a bullish Nikkei 225 index. But the most watched currency – the USD/GBP hit its lowest level since 18 April 2016. Currency traders are in the midst of a highly volatile trading period right now and this will continue for the next 10 days, possibly beyond.
UK Investment Advice
Analysts are urging caution at this point in time. Nobody is rushing to go all in with equities, given the instability of global sentiment. Currency traders are enduring an unusually high period of volatility now. So pervasive is the Brexit issue right now that even The Sun newspaper headlined with the following, ‘BeLEAVE in Britain’ as it urged the United Kingdom to vote for a Brexit on 23 June. The one-month sterling volatility measure has now reached its highest level ever, and currency traders are anxious about the real possibility that a Brexit will come to pass. The GBP/EUR volatility hit 26% – the highest ever, even surpassing the 25% level during the financial crisis of 2008/9. For now, a hold and wait approach is a sensible approach to adopt.