Market report Michael Blumenroth – 24.06.2016

Weekly market report

Today’s events will go down in history. After weeks of anticipation, the vote on British EU membership has gone out with a bang. Until the middle of last week, survey results grew increasingly bleak with a large majority forecasting that Britain would indeed vote to exit the EU. A sudden turnaround on Thursday evening caused a fulminant price rally across the European stock markets after traders turned increasingly bold regarding risk taking. The leading indices continued to climb upward throughout the following days, alongside the British pound and the euro. Mirroring this development, gold slumped and continued to do so until midnight last night, when the vote count started rolling in and things took a drastic turn.

So now it is a fact: Great Britain will leave the EU. As a first reaction, we saw massive price movement, especially in the currency market. Intermittently, the pound sterling fell by more than 11 per cent and to a 40-year low. The euro also experienced its largest daily losses against the US dollar, temporarily taking a more than 4 per cent slide. Safe havens were sought especially in the hours showing that the suspicions were turning into certainty. This was of course gold, and the usual currency market suspects yen and Swiss francs.

While the precious metal had still been trading at 1,285 US$/ounce last Friday, it declined to 1,251 US$/ounce in the course of this week – or specifically just before last midnight. Having climbed to 1,290 US$/ounce by 5 a.m. today, a wave of near-panic-like buying pushed it up further to 1,358 US$/ounce. With markets calming down somewhat in the ensuing hours, the price of gold eased back slightly to 1,322 US$/ounce, the highest since July 2014.

Xetra-Gold investors are also benefiting from a weaker euro. Having traded at 36.75 €/gram around the same time last week and at a weekly low of 35.50 €/gram around noon yesterday, the exchange-traded commodity climbed to 38.53 €/gram at the start of trading today. Amid the slight decline in US dollar-denominated gold, the euro is now lower at 38.15 €/gram, still more than 3 per cent above last week’s level.

It remains to be seen how markets will digest the Brexit shock over the weekend and what is to come at the beginning of next week. Due to my absence on Thursday and Friday, the next market comment is set to be published on Wednesday.

I wish you all a good weekend – with as little rain as possible. And I hope you will enjoy watching the European Championship football matches after what has been a tense and eventful week.

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