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 Gold rebounded from a modest overseas setback, pushing to new
three-week highs. While deterioration Fed rate hike expectations are likely a
contributing factor in gold's latest gains, the firm dollar today suggests
rising tensions surrounding Brexit may also be playing a role.
The yellow metal is back above the $1270 level, about where it was when
everyone was surprised by the hawkish tone in the April FOMC minutes and were
suddenly convinced that a summer rate hike was imminent. Last Friday's
terrible jobs report pretty much pulled the plug on those prospects, and
while the latest survey from Reuters suggest there is still a possibility for
a July hike, most respondents seem to have shifted their focus to September.
Even so, Fed funds futures place the odds of a September hike at just 40%. If
U.S. data continue to come in weak, that number will likely shrink further in
the weeks ahead.
Rising risks of Brexit may be the greater influence today. While recent
polling shows Brexit gaining momentum, betting at London bookmakers suggest
the 'stay' crowd is maintaining an edge. Investors seem concerned that the
vote could go either way and so they are taking precautionary measures;
including buying gold coins and bars.
George Soros reportedly was loading up on gold and miners for the same
reason. "If Britain leaves, it could unleash a general exodus, and the
disintegration of the European Union will become practically
unavoidable," Soros said. The EU and ECB bent over backward to keep weak
members of the union from leaving several years ago. Now, one of the stronger
members is going to vote on leaving.
If it were to work out in the UK's favor, other members of the eurozone could
put similar votes to their people. Earlier this year it was reported that 53%
of French voters are in favor of a Frexit referendum.
I always thought Germany might be one of the first to leave as they bare a
significant burden for the profligate PIGS nations. If the German population
were to be polled, I suspect they'd find a majority of Germans are generally
displeased with how Brussels has been handling things in recent years.
Britain may just be the first domino. It it topples, it may knock others over
as well.
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