Gold Hit By Bets That Great Britain Will Hang In With The EU.

June 23, 2016 - 4:53pm

 by Gary Wagner

Back in the 1960s and 1970s, a commercial for women’s hair coloring asked the question: “Does she or doesn’t she?” Today we ask a similar question about Great Britain and the European Union. 

Does Great Britain stay with the union that has brought Europe – Great Britain included – unprecedented prosperity or does GB leave and cast itself off into uncharted waters. The nay voters seem to believe that there is no cost for leaving, should that happen. (Granted, at this moment and unlikely prospect as clothes come cnear closing time.)

But for GB it would certainly unravel all sorts of trade and political connections and put it at the mercy of the two behemoth economies, namely the E.U. and the U.S. Just the thought of how many agreements, governmental and private, that would have to be renegotiated or rewritten makes one nauseated. 

Be that as it may, markets today are betting on No Exit. Equities around the world (except Shanghai, which has parochial problems) were up sharply to moderately. The indexes based in the EU, in particular, soared, as did the FTSE in London.

The Dow zoomed above 18,000; the S&P 500 jumped over the 2100 mark and NASDAQ was up 1.60%. 

As might be expected, the euro and British pound jammed into overdrive and were the dominant up currencies for the day. The U.S. dollar is, however, up mightily against the yen (by 1.45%), an indication that today is a risk-on session. The yen is generally considered to be a safe haven.

Gold, in spite of a small helping hand from the dollar decline against the euro, is off around $7.00 in the spot market, after 4PM in New York. Silver made a small gain of about 0.35%.

Another indicator that today was a risk-on day appeared in the rise in the yield of 10-year U.S. Treasury bonds and the reciprocal decline in the face price. The yield is heading toward 1.75%.

As might be expected during a risk-on day, West Texas Intermediate oil, absent any other serious news, was up almost 2.00% while Brent North Sea jumped more than 2.00%.

The VIX volatility index liked what it thought was coming out of Great Britain regarding the EU vote, declining almost 18.00%. 

The CME’s FedWatch implied probability Index was betting ever so slightly more that the British “Bremain” would increase the chance of a Fed rate hike late in July. 

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Gold Forecast: Proper Action

We are currently flat with no active trades in gold or silver. After pulling profits earlier this week in gold, it was our current belief that we would see gold prices drift lower, which is exactly what we have seen unfold.

Based upon our current studies, we believe gold prices could trade as low as 1245 which is a 61% retracement of the move from 1200 to 1320. Although the Brits have voted on the referendum as to whether they want to leave the European Union, we are still a few hours away from knowing the results.

However, based upon a strong upside move in European equities, and follow-through to equities trading in the US, traders and investors have pretty much settled upon the assumption that the UK will remain part of the European Union.

Gold Market Forecast

It is absolutely more difficult to put a tremendous amount of weight upon technical studies during periods when markets are heavily fundamentally driven. Today is a classic case in point as investors and traders react to market sentiment. Soon enough, the outcome of the EU referendum in the UK today will be known 

If in fact the overwhelming assumption turns out to be correct, we would look for a continuation of the dynamic rally in both European equities as well as equities here in the United States. We would also look for gold to continue to trade under pressure, although we believe the majority of current sentiment has already been factored into prices.

One strategy we are considering is to put in a price order to buy gold at 1250 if touched.

Trending Markets Forecast

Beginning last night, traders and investors somehow saw through the smoke and acted upon the underlying assumption that Britain will remain in the European Union.

Thus we saw a tremendous upside surge in European equities, as well as European currencies as they traded against the US dollar. We would look for this current trend to continue.

Most noteworthy is the fact that should this rally continue there is a high probability that US equities will trade to a new record high.