Gold soars, oil shudders after British vote to exit EU

Investors shun assets that would be hit by slowing global economy

GOLD clocked up its biggest daily gain since the 2008 financial crisis on Friday as Britain’s vote to leave the European Union spread political uncertainty and concern about economic growth, which also hit industrial commodities such as oil.

The 52% backing for leaving the 28-member bloc created the biggest global shock since the 2008 financial and economic crisis.

The vote’s impact reverberated worldwide, prompting more investors to park their cash in the safety of gold and shun assets that would be weakened by a slowing global economy.

“The flight to safety may go on for a while: when something like this happens, risk aversion is not confined to one region,” said Ashok Shah, investment director at wealth manager London & Capital.

“There will be a forced reduction of risk, unwinding of leverage positions and margin calls. Trend followers will also jump on the bandwagon.”

Spot gold rose more than 8% on Friday, its biggest oneday gain since September 2008 in the aftermath of the Lehman collapse, to hit $1,358.20 an ounce, its highest since March 2014.

Investors also sought safety in US Treasury bonds and currencies such as the Swiss franc and Japanese yen.

“Uncertainty is not going to be resolved for some time, there are questions about trade agreements and concern the vote will give support to other EU countries looking for a way out,” Shah said.

News that Prime Minister David Cameron will step down raised further questions, as did national elections on Sunday in Spain, where Catalonia seeks independence.

“There are elections in France and Germany next year, but before then we've got the US (Presidential) election. Uncertainty is rife and gold is reflecting that," said Andrew Cole, a fund manager at Pictet Asset Management.

“What if (France’s farright National Front party leader) Marine Le Pen starts talking about a referendum, how will the French establishment avoid going down the UK route?”

Heightened risk aversion can be seen in the stronger dollar, which under normal circumstances would hurt by making it more expensive for holders of other currencies. “The negative reaction in cyclical commodities is very much a reaction to a stronger dollar, which will restrict global liquidity,” said Christian Gerlach, portfolio manager at GAM Investment Management.

A major casualty was oil, which tumbled more than 6% to a one-week low below $50 a barrel anticipating slowing demand growth.

But Pictet’s Cole was surprised by oil's reaction. “We’d be premature to think the events of last night will meaningfully slow global growth, it’s too early to make that call.” Reuters