Gold Gains on a ‘Perfect Storm’ of Factors

July 6, 2016 at 09:54


Gold jumped to its highest price since March 2014 on Tuesday as investors looked for a safe investment amid continued fallout from the United Kingdom’s vote to leave the European Union.

Gold for August delivery settled up 1.5% to $1358.70 a troy ounce on the Comex division of the New York Mercantile Exchange.

“We’re seeing people adding to positions,” said Bob Haberkorn, senior market strategist at RJO Futures, adding that buyers are reacting to several factors.

While investors remain unsure about the impact of the U.K.’s decision to leave the EU, Mr. Haberkorn said they are also watching comments expected Wednesday from the European Central Bank for signs that the bank could be readying a new stimulus package.

Low bond yields have also made the yellow metal more attractive, he said. Gains in the metal can more easily match or outpace yields when interest rates are low.

All of these factors create “the perfect storm” to push the metal higher, Mr. Haberkorn said.

Earlier on Tuesday, gold dropped as investors realized profits after prices touched a two-year high Monday on London exchanges. U.S. markets were closed on Monday for the Independence Day holiday.

Suggestions that central banks will keep interest rates low affirmed a negative outlook for the global economy, driving demand for gold as a haven asset.

Analysts were split on how gold would perform in the long term.

“We’re still quite optimistic towards the gold outlook, because Brexit means that global investors face protracted uncertainty,” said Xiao Fu, head of commodity markets at BOCI Global Commodities (U.K.) Ltd.

But others suggested that gold prices may have risen too high, too quickly. “There is now considerable correction potential,” analysts at Commerzbank wrote in a note to clients.