- Prithviraj Kothari, MD RSBL
Clearly FED dominated first quarter of 2016 with respect to price movements in precious metals market and specially Gold. Moving here, there are lot of key events that could be considered game changing for Gold and Silver prices.
The June FOMC left the borrowing rates target unchanged while St. Louis
Fed president James Bullard said the U.S. economy might need only one interest
rate increase through 2018. The Fed's actual pace of rate increases has been
much slower than what was mapped out by the committee in the past. This
mismatch between what they are saying and what they are doing is arguably
causing distortions in global financial markets, causing unnecessary confusion
over future Fed policy, and eroding credibility of the FOMC.
Gold prices endured an extremely volatile session last Friday after
Thursdays aggressive wash-out, grinding its way higher throughout the European
and U.S. days to close out the week on a positive note (+1.6% higher for the
week).
The Bank of Japan also did nothing to reassure the markets with a
"shock and awe" monetary ease, impotent to act on the eve of Brexit
and the upper house Japanese Diet election.
Everyone has been talking of the Brexit and as to how it will affect Gold
prices. Those concerns were echoed by policymakers around the world last week.
The Bank of England called the referendum the largest immediate risk
facing U.K. financial markets, and possibly also global financial markets. Lets
have a look as to what exactly Brexit is and how will it affect the financial markets
and more importantly what effect it can have on the yellow metal.
WHAT IS BREXIT:
International policymakers are ramping up
their warnings on the dangers of a British exit - popularly known as
"Brexit" — from the political and economic alliance that has united
Europe for the past four decades. Voters in Britain will decide whether to
leave or remain in the European Union in a referendum on Thursday, but
financial market volatility has already spiked as polls show a growing desire
to abandon the partnership.
HOW WILL IT AFFECT UK:
The International Monetary
Fund on Friday issued one of the direst forecasts to date, calling the impact
of Britain's departure from the European Union "negative and
substantial." The fund predicted that a Brexit could reduce economic
growth by up to 5.6 percent over the next three years in its worst-case
scenario. The gloomy outlook is driven by an expected sharp decline in the
pound and severe disruptions in trade as the nation is forced to renegotiate
deals with countries across the continent, potentially on worse terms.
HOW IT WILL AFFECT GOLD:
Gold is the obvious
beneficiary of a dovish Fed, negative interest rates in Germany and Japan and
the safe-haven bid to hedge Brexit risk.If Brexit happens then we may see gold
trade at $1350 an ounce in the days to come. If Britain does not vote to leave
the EU, gold prices could fall to $1220 as an immediate liquidation
move.
If Britain leaves EU, the
other states would also look for this option and the idea of unified Europe
would fail. The challenges are coming at an already weak moment for Europe's
economy — and the world's. Europe is still recovering from the series of
financial crises that have been roiling countries such as Greece and Italy
along with others across the continent. Waves of refugees from the Middle East
are spurring political and cultural unrest.
In short, A Brexit would be bad for the U.K., it would be bad for
Europe, and it would be bad for the world, and will further add to the current
global uncertainties thus sending shockwaves through all financial markets but
a positive for safe haven status of Gold.
Thank You!
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The primary
purpose of this article by Mr. Prithviraj Kothari is to educate the masses of
the current happenings in the Bullion world.
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