Brexit could push gold price as high $1 400/oz in coming weeks

JOHANNESBURG (miningweekly.com) – Gold and silver prices on Friday surged above their 2016 highs in the wake of the outcome of the British referendum to leave the European Union (EU) – the so-called Brexit.

Fitch Group research firm BMI on Friday said it expected additional gains for these precious metals over the coming weeks.

The firm predicted that the Brexit would boost gold and silver prices owing to the fear over a negative fallout in financial markets that was driving a “flight to safety” among investors, to the benefit of developed market bonds and precious metals.

Further, the anticipated negative impact of the Brexit on global growth would force bond yields lower and raise the attractiveness of holding gold as an investment.

“Gold and silver have already rallied strongly in the year-to-date in part as a result of a growing consensus that developed market real rates will remain depressed through 2017,” BMI explained.

Further, the firm stated that the Brexit would reinforce this trend as government bond yields in the US, Japan, Germany and the UK have all compressed markedly since the 'Leave' outcome became apparent.

A vote for Brexit had pushed gold prices above their 2016 high of $1 315/oz and BMI predicted it would reach $1 400/oz over the coming weeks. 

Under BMI’s core view that the UK would remain in the EU, the firm had already forecast an average gold price of $1 275/oz in 2016, which implied prices averaging $1 326/oz over the remainder of the year, and forecast an average of $1 350/oz in 2017.

“Brexit has turned us more bullish on [gold prices in] the coming months.”

However, BMI stressed that the longer-term impact on precious metal prices would depend on to what extent the Brexit vote could be the trigger for further financial market weakness, raising the prospect of a global financial crisis.

The firm commented that the economic and political uncertainty that the Brexit vote was likely to cause for Europe would be “profound” and the vote could, ultimately, turn out to be the 'Lehman event' that triggers a collapse in developed market stocks that BMI had long warned about.

“We also note that the vote is one of many tail risks that we have highlighted for 2016, and that it makes a number of these risks more likely, including a Donald Trump election win in the US later this year, a US recession, a Chinese yuan devaluation and a Japanese fiscal crisis, among others.

“Should any of these adverse scenarios play out, gold and silver prices will strengthen beyond our already bullish expectations,” BMI stated.