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Gold In Euros Surges 6% In June and 17% YTD On BREXIT Concerns

 -- Published: Tuesday, 14 June 2016 | Print  | Disqus 

By: Mark O'Byrne

Gold in euros has risen another 0.6% today due to deepening BREXIT jitters with just 9 days left until the referendum on June 23. The flight to gold and sell off in euros and sterling came as Irish, UK, European and global stock markets fell sharply.

Gold in euros has risen from €1,136/oz to €1,144/oz today and is up 6% in the first 9 trading days of June, from €1,080/oz to €1,143/oz, as investors diversify into safe haven gold due to concerns Britain will vote to leave the European Union. Should the UK leave, there are real concerns that it will lead to other European nations following suit and see contagion in the Eurozone.

Gold is 17% higher in euros year to date due to concerns about the Eurozone and increasing concerns about the global financial system and the global economy.

Gold in sterling has risen even more given BREXIT concerns and is up 10% in the first 10 trading days of June, from £827 to £908/oz, as UK investors diversify into safe haven gold due to concerns Britain will vote to leave the European Union.

A series of BREXIT opinion polls over the weekend strongly suggested Britain could vote to leave the EU, which many fear will likely lead to a fresh wave of turmoil across markets internationally and heightens the real risk of the break up of the European Union.

The Irish stock market and stocks internationally have come under pressure. Ireland’s stock market, the ISEQ fell 2.3% yesterday and has fallen 0.6% today to 6,402 as concerns about the impact of BREXIT on Irish companies and the Irish economy impact Irish stocks.

Irish banks continue to come under pressure due to concerns about their balance sheets. Bank of Ireland fell 4.9 per cent to 23.2 cents, its lowest level in 2½ years.

Analysts at JP Morgan warned that the Irish lender would be among European banks most affected by a Leave vote. The UK accounted for about 43 per cent of BoI’s loan book at the end of last year.

Separately, the Central Bank of Ireland has warned that Brexit could have a “material” impact on profitability of Irish financial firms and banks, with the UK accounting for about 20 per cent of total revenues of Irish banks.

“The Central Bank has been engaging with firms across all parts of the financial sector, with particular focus on the firms with the largest UK exposures, to ensure they are prepared for risks associated with a potential Brexit,” the Central Bank said in its latest Macro-Financial Review, published on yesterday.

There was a sea of red ink across Europe yesterday. The Stoxx Europe 600 Index dropped 1.84pc after a 2.4pc fall on Friday.

In London, the FTSE 100 Index fell 1.2pc. In Paris the CAC 40 Index fell 1.9pc while Germany’s DAX Index gave up 1.8pc. They have fallen another 1.3%, 1.2% and 1.5% respectively again today.

U.S. stocks also fell amid concern over tepid growth and potential further market turbulence.

Stocks in Asia have fallen. Japan fell to a two- month low, with the benchmark Nikkei 225 index slumping 3.5% yesterday and another 1% today.

The mass shooting in Orlando and deepening concerns about terrorism will not help market sentiment and will support gold. Deepening social and geopolitical tensions in the United States and the most uncertain political outlook for many years are also contributing to demand for gold.

A Brexit vote on June 23 could see gold prices quickly surge to $1,400/oz, analysts at Capital Economics Ltd. said in a report on Friday. Similar gains are likely to be seen in euro terms and given the ECB’s continuing ineffective and risky ultra loose monetary policies which now include creating euros to buy European junk corporate debt the outlook for gold in euro terms is very positive.

We expect gold to rise to its previous nominal, non-inflation adjusted high of €1,379/oz in the coming months and longer term we believe gold in euro terms will go to thousands of euros per ounce given the scale of currency debasement and political, financial and economic challenges facing the EU.

€2,000/oz is now a highly conservative long term price target. As ever, Irish and European investors should not be buying gold purely for speculative purposes. They should focus not just on price and the likelihood of real price gains but on gold’s value as a safe haven diversification in uncertain times.

Mark O'Byrne
Executive Director

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