How Brexit poll would influence gold prices; should you invest?

By: and |
Published: June 21, 2016 12:03:16 PM

Gold prices may rally further if Britain leaves the European Union after the June 23 referendum, said analysts.

Gold prices - BrexitGold prices may rally further if Britain leaves the European Union after the June 23 referendum, said analysts.(Photo: Reuters)

Gold prices may rally further if Britain leaves the European Union after the June 23 referendum, said analysts. Gold has been seen as a less risky assets to invest as possible British exit looms large, which has affected the global markets, including India.

On a month-to-date basis, gold prices have surged 4 per cent to Rs 29856 till June 20. The yellow metal was as Rs 28742 on June 1. During the month, it touched a high of Rs 30598 per 10 grams on June 16 and low of Rs 28616 per 10 grams on June 3.

Though some opinion polls indicated Britain could be more likely to opt to remain in the European Union post June 23 referendum, gold prices on Tuesday inched higher as the dollar weakened. Sudip Bandyopadhyay, chairman of Inditrade Capital said, “I personally believe Britain will stay in European Union.”

Gold prices have been correlated with the outcome of a UK referendum on EU membership. US Federal Reserve Chair Janet Yellen last week had said that referendum was factored into a decision to keep rates unchanged.

“If Britain leaves the EU, then gold is bound to move up further as a flight to safety asset because a lot uncertainty is expected post the exit result. Also, the Fed has been sounding dovish, due to Brexit and that means no rate hikes in the foreseeable future, which is again a sentiment booster for gold,” Gnanasekar Thiagarajan, director of Commtrendz Risk Management said.

Gold fell for a second session on Monday as polls showed British voters tilting toward remaining in the European Union reduced investor demand for a haven. Bullion rallied to the highest in almost two years last week as global central bankers sounded the alarm that a British exit from the European Union could be disruptive to the global economy.

According to SMC Investment and Advisors, Gold may trade on volatile path as Brexit fears and ECB president speech on Tuesday will give further direction to the prices. Meanwhile, movement of local currency rupee will also affect the domestic prices. Gold can move in range of 30,400-30,800.

“Gold prices will see a knee-jerk reaction and may catch up on the higher side if Brexit vote outcome is in favour of leaving the EU and touch the range of around $1,375 per troy ounce in the international market. Obviously, it will have a positive influence on the gold’s safe haven status. However, if the referendum decides on remaining in the EU, then gold will consolidate and remain $1,300 per troy ounce range,” Naveen Mathur, commodity head, Angel Broking said.

As dollar prices influence the yellow metal’s price, the gold may remain a safe haven bet if dollar weakens.

On domestic factors, Mathur said, gold demand is muted and may increase if monsoon progress is healthy, affecting the rural demand in the country.

Should you invest? Mathur said it is not the right time to invest in the precious metal, but one can hold in the present uncertain scenario.

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