In what was an extraordinary day for global financial markets, and a day
which will no doubt become legendary and enter folk memory in the UK and
elsewhere, the electorate of the United Kingdom voted 51.9 % to 48.1% to
leave the European Union. As the first count results began trickling in
during the very early hours of Friday morning London time from northern
England constituencies such as Newcastle and Sunderland, the cosy optimism
that had prevailed in the Remain camp became increasingly agitated as the voting
majority swung to the Leave side and quickly snowballed, in what was a shock
to many.
The Sterling – Dollar cable rate plummeted, gold took off, especially in
GBP, and BBC presenters became increasingly stony-faced and pale looking. By
3:40am UK time, Leave was ahead by 500,000 votes, and just an hour later the
major UK networks of first ITV and then the BBC called the election to the
Leave camp. Nigel Farage, promoter of the Leave side and leader of the UK
Independence Party (UKIP), who had earlier conceded then un-conceded defeat,
reappeared to the press and when asked what he would do next announced that
he was going for a celebratory drink. As Farage and his boisterous entourage
were undoubtedly finding a suitable early hostelry to settle into in Westminster,
an ashen-faced British Prime Minister David Cameron appeared in Whitehall to
announce his resignation in what had already become a day of records.
All this time gold was soaring and the British Pound was folding. Gold in
GBP started moving at 2:45am UK time when it was at £852, and as the voting
tide turned, gold in GBP peaked at 5:30am at approximately £1004, an 18% move
in less than 3 hours. GBP gold then fell slightly from the peak and has
settled into a roughly £950 to £960 range.
Gold In GBP 24th June 2016 https://www.bullionstar.com/charts/?fromIndex...eightUnit=tr_oz
US Dollar gold, which had been as low as $1250 before the voting pattern
emerged, surged past $1300 before 3am UK time, and peaked at just under $1340
before 6am UK time, for an up move of 90 bucks, before it too fell back
slightly into a range of $1310 to $1325.
Gold in USD 24th June 2016  target="_blank";https://www.bullionstar.com/charts/?fromIn...eightUnit=tr_oz
Silver also had dramatic gains intraday, especially in GBP.
Silver in GBP 24th June 2016&n target="_blank"bsp;https://www.bullionstar.com/charts/?fro...eightUnit=tr_oz
GBP - USD suffered an unprecedented fall by over 11% at one stage today,
moving down 18 cents at one point from $1.50 to a 31-year low of $1.32, a
level not seen since mid-1985. It was since recovered partially to trade at
$1.375, still down over 8% on the day.
GBP - USD one day rate, 24th June 201 target="_blank"6 https://www.bullionstar.com/charts/?...eightUnit=tr_oz
The Euro weakened significantly against major currencies, one of the
reasons being that the uncertainty of the UK’s exit from the EU may
precipitate further defections that could include a Eurozone member country.
FTSE equity indices fell sharply intraday before recovering somewhat. Bank shares
were hammered especially the shares of UK and European banks.
The massive moves and volatility spikes caught much of the financial
markets off-guard, hence the dramatic price movements and flight to safety.
As gold was bid, it has yet again proved its role as one of the world’s
preeminent safe havens and protectors of wealth that investors will flock to
in times of crisis and fiat currency uncertainty. According to ICBC Standard
Bank, as cited by the Financial Times, the Shanghai Gold Exchange traded a record
equivalent of 143 tonnes of gold during its trading day today – 24th
June. One person who seems to have been confident of a Leave win is Arron
Banks, a rich donor to the Leave side. He was said to have commissioned a
poll of 10,000 people (which is a large sample size), and the results of this
poll, released today, revealed a 52 – 48 win for Leave. So perhaps some hedge
funds and investment banks were privy to similar data last night.
The world’s major central banks, who were meeting in Basel at the Bank for
International Settlements this week, may appear to have been also blindsided
by the election result, however, being the conservative types, they seem to
have been prepared for this contingency and have, in a not too subtle way,
indicated their collective intention to intervene in the FX and funding
markets in a coordinate fashion, and with total disregard of the free
functioning of financial markets. Central banks are by their very nature
interventionist, meddling and secretive in their interventions, so this is
hardly surprising. However, its more blatant than usual.
The Bank o target="_blank"f England announced
that it “will continue to pursue responsibilities for monetary and financial
stability relentlessly”. This use of ‘relentlessly, is quite ominous
bank-speak and could even suggest intervention in the gold market, since
after all, the Bank of England houses its FX and Gold operations on the same
desk and is allowed to use all assets of the HM Treasury’s Exchange
Equalisation Account (EEA) to pursue monetary stability. So some ‘smoothing
operations’ or ‘stabilisation operations’ on the gold price by the Bank of
England (or by the BIS) are not beyond the bounds of possibility. In fact, it
is logical for the major central banks to intervene in the gold market since
they do not want gold to play the role of canary in the coalmine as this
counters their ‘stability’ meme.
< target="_blank"p>The ECB said
this morning that it “stands ready to provide additional liquidity in
Euro and foreign currency, in close contact with other central banks
target="_blank"In its stateme target="_blank"nt
today,
the Bank of Japan said that it has ”a network of currency swap arrangements
is already established by the central banks of major countries. The Bank of
Japan will take appropriate measures as necessary, including activation of
this network”.
Meanwhile, the US Federa target="_blank"l Reserve announced that
it is "carefully monitoring developments in global financial markets, in
cooperation with other central banks,….The Federal Reserve is
prepared to provide dollar liquidity through its existing swap lines with
central banks, as necessary, to address pressures in global funding
markets..”
Not to be outdone, the Swiss National Bank (SNB) didn’t just threaten to
intervene, it did intervene today as the ‘Swiss franc came under upward
pressure’. Accord target="_blank"ing to an email
sent to Blo target="_blank"omberg by
the SNB “has intervened in the foreign exchange market to stabilize the situation
and will remain active in that market”.
BullionStar saw noticeably higher website traffic today in its gold and
gold bar featured web pages, and somewhat higher demand and sales than
normal, but BullionStar does not have the shortages in inventories that are
being reported by other dealers. In fact, BullionStar has plenty of stock.
Where there does seem to be tightness in the physical gold market is in
the London wholesale market, where gold has now flowed into London from
Switzerland for 3 consecutive months (69 tonnes in May, 80 tonnes in April,
and over 40 tonnes in March), most likely to top up gold holdings of the SPDR
Gold Trust, whose inventory has now recorded a latest multi-year high of
915.9 tonnes. This importation of gold into London from Switzerland does seem
to indicate that there is not much free float of gold sloshing around the
London Gold Market.
The seismic shifts brought about by today’s extraordinary day in the UK
will not settle quickly and may only just be the beginnings of further
tremors that have been unwittingly released in into the global economic
system. Politically, the UK is in a place where it did not think it would be.
Cameron is resigning, Boris Johnson is favourite to take his place, and there
is pressure on the opposition Labour leader Corbyn to resign with accusations
that he is out of touch with the electorate. In the financial markets, the
major banks are in deep trouble and dollar funding is an issue, even
according to the central bank interventionalists. In such a climate of
evaporating paper wealth, gold, and to an extent silver, are stepping forward
to play their traditional roles of war chest assets, assets with real
intrinsic value.
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