Gold Hits 3-year High Against Sterling as Focus Shifts to Brexit

Gold extended to the upside on Thursday as the implications of the Fed's dovish tone sinks in and focus shifts to next week's Brexit vote. The yellow metal reached an intraday high of 1315.61, a level last seen in August of 2014.

The Fed's decision to hold steady yesterday came as no real surprise, as the expectations for a rate hike that emerged upon the release of the minutes from April FOMC meeting were reversed out in the two weeks following the terrible May employment report. What was rather stunning was how rapidly the tenor of the Fed changed between the April and June meetings. Such wild swings in sentiment do not bode well for the central bank's credibility.

On the other hand, based on recent history, we may discover some alternative reality when the June minutes come out next month. I doubt it though. During her press conference yesterday, Janet Yellen said that she had been "somewhat surprised" by how the market interpreted the April statement as being dovish. Of this most-recent meeting, I don't think there can be any doubt.

The Fed trimmed both their growth and inflation forecasts and the dots revealed that FOMC members scaled back their expectations for rate increases. For what that all is worth . . .

The Fed's economic projections and those dots have become the subject of much market ridicule. Jim Rickards has suggested their abysmal track record is the result of flawed models, but I wouldn't completely rule out that there is a perceived need for the central bank to dispense some ration of hope; that things aren't so bad. Of course once you've gone down that path, when reality strikes, it's going to be even more jarring.

As that reality eclipses the brighter picture that policymakers have attempted to paint, the demand for a safe-haven like gold is amplified. Particularly with another major risk event just around the corner.

Brexit is gaining momentum and the eurozone technocrats are understandably worried. This is shaping up to be a year where the average citizen is simply fed-up with the status quo. They may not really know why, beyond the irritating sense that the status quo has not, and is not, working for them.

The Telegraph's Ambrose Evans-Pritchard revealed earlier in the week that he will vote in favor of Brexit. His reasoning makes an incredibly compelling read.

Stripped of distractions, it comes down to an elemental choice: whether to restore the full self-government of this nation, or to continue living under a higher supranational regime, ruled by a European Council that we do not elect in any meaningful sense, and that the British people can never remove, even when it persists in error. — Ambrose Evans-Pritchard

Thinking back to the 90s, I couldn't reconcile in my head why or how a sovereign nation and people would cede so much authority to Brussels. The reality was this was all executed by treaty; the people never really had a say. If Evans-Pritchard's article is resonating with the public, they may actually vote to wrest back their sovereignty and give it a go outside the EU.

At this point, the outcome of the referendum is still very much up in the air. Whichever way the UK goes — and perhaps particularly if they vote to leave — it will likely be years before anyone will be able to credibly determine whether it was the right decision or not. In the short-term there will almost assuredly be market volatility, which bodes well for haven investments.
Gold priced in sterling pushed to a new 3-year high of £938.73 today, before retreating into the range; a price last seen in May of 2013. One could reasonably argue that potential is back to £1,000 at this point and from there, the all-time high at £1,194.68 is not that far away.