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Gold - A Reliable Store of Value in Uncertain Times

By Bryan Lum, strategist at Phillip Futures

Gold - A Reliable Store of Value in Uncertain Times

These last few weeks have been a roller coaster ride for Gold. It looked like the precious metal’s recent bullish trend might have come to a premature end as markets prepared themselves for a summer interest rate hike. Strong economic data, coupled with hawkish language by the Fed, painted a picture that a decisive 0.25% increase would come in either June’s or July’s FOMC statement. Expectations fuelled strength in the US dollar and battered Gold (priced in USD) lower from a fresh high of $1303. All that remained was confirmation from the monthly non-farm payrolls (NFP) report, a barometer of the labor market’s health.

Skeptics however kept Gold prices above their key support level of $1200. The decision would soon see them benefit handsomely. May NFP numbers were the first in a string of market shocks to come. The labor market added a mere 38k jobs compared to a forecasted 160k. The disappointing figures rattled markets and chances at a summer hike were now slim. On the other hand, the poor news sparked a reversal in Gold with prices rallying over $30.

June’s FOMC statement dampened rate hike expectations further with the central bank revising interest rate projections lower not just for 2016, but 2017 and 2018 as well. The low interest rate outlook appeared to signal a green light for Gold bulls, and with the uncertainty of the EU referendum, prices would re-test the $1300 level.

With the UK vote on EU membership now concluded, markets will face their greatest period of uncertainty yet. On the morning of June 24th, the ‘leave’ campaign held on to a convincing 4% margin lead as the vote count inched towards its final leg. Investors, sensing an inevitable Brexit result, did not wait on the final announcement to act. The price of Gold surged to a 2 year high as funds poured into the precious metal, seeking out refuge in its safe haven status.

A single question of “in or out?” has rippled doubt across global markets. Will we see a pro-EU Scotland make another attempt at independence? Perhaps even further UK fragmentation from a betrayed London?  At the same time, markets have yet to see how central banks will respond. The Brexit threatens to force additional stimulus from the European Central Bank, an extended hiatus on rate hikes by the Fed, and even possible currency intervention by the Bank of Japan. As global risks stack up, few assurances remain. That markets will look to gold for a reliable store of value will likely be one of them.

How much stronger can this safe-haven asset get? This could be your golden opportunity. From now until 29 July 2016, stand to receive premium gold when you trade spot gold with Phillip Futures.

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