Gold rose as much as 8% (the highest in over two years) on June 24th, 2016 after the UK provided a shock vote to exit the EU.
The investors were found rushing for protection in bullion and other assets perceived as lower risk. They were purchasing gold as an insurance asset, a hedge against tail risks and increases in volatility.
The anxiety in the market is expected to remain in place this week until the market comprehends the next political moves.
In sterling standings, gold delivered double-digit percentage increases to top 1,000 pounds an ounce for the first time in over three years.
The rate for spot gold peaked at $1,358.20 per ounce. The US gold futures for August delivery moved up by $59.30 to settle at $1,322.40. Shares of gold mining firms also moved higher.
Brexit is extremely beneficial to gold since, in an overall risk-off mode, it’s a logical safe haven for all investors.
Post-Brexit, market experts believe that there is a greater probability that the $1,350-1,360 per ounce level could be breached.
Gold dealers in the UK reported rising demand for coins and bars among retail investors, while stocks were rangebound.
Global stocks headed for one the substantial crashes on record as the vote triggered 8 percent falls for Europe’s biggest exchanges and the greatest drop for sterling.
The sterling was under pressure because of worries among the investors that the Brexit vote would result in similar movements in other European nations.
The Fed was expected to reduce interest rates to help protect the economy from any global fallout. Gold would be supported by the change in the stance to easier monetary policy.
Gold has become very attractive post-Brexit because the interest rates globally have been pushed lower.
At present, deflation is a bigger threat than inflation. Investors would not want to invest in a government bond with a negative interest rate.
The demand for gold always moves up when there are negative interest rates. Again from a political perspective, Brexit could trigger other nations to leave the EU. These uncertainties would contribute to the rise in demand for gold in the future.