Gold rush to end

LONDON — Gold’s sharp gains on uncertainty over Britain’s European Union ( EU) membership are likely to come to an end, regardless of whether Britons vote to leave or remain in today’s referendum.

Prices hit their highest since August 2014 last week as the $5-trillion a year gold market rose with other “safe” assets, such as German bunds, the Swiss franc and Japan’s yen.

Recent polls suggest an even split and although investors are worried about the economic and market fallout of a “Brexit”, bullion’s uncertainty premium is not expected to last.

A “Remain” vote is seen as quickly unwinding gold’s 5 percent gain in June, as appetite for risk rises and focus returns to the US economy, analysts and fund managers say.

“A clear win for the ‘Remain’ side will see US yields rise as the potential drag on the global economy and risk appetite is removed,” said ICBC Standard Bank analyst Thomas Kendall.

“Gold in dollars would likely drop 4 percent to 5 percent,” Kendall added.

The metal is negatively correlated to rising US real yields because the opportunity cost of holding it increases.

And while some see a “Leave” result as a risk-off event that could see gold rally, others see lower prices if the dollar rises and oil falls. Gold is often seen as a hedge against rising inflation.

“If investors become overly worried, it is likely that the greenback strengthens with implications for earnings and industry group positioning as precious metals and commodities weaken,” Citi analyst Tobias Levkovich said.

Another reason for gold to see a sharp, albeit short-lived fall is that in times of financial stress, it can be used as a source of cash to cover losses elsewhere. Sharp declines in equities, for example, could push investors to liquidate gold positions to free up capital. — Reuters.