Market players put their bets on the yellow metal as the Federal Reserve held its benchmark and as expected the Bank of Japan and Bank of England followed the decision of the central bank. Brexit sentiments also pushed gold higher as the outcome of the referendum might affect the global financial market.
Federal Reserve
As the U.S. faced a slow pace economic growth, the Federal Reserve reconsidered the expected increase on its monetary policy. The central bank kept the interest rate at 0.25 to 0.50 percent in the conclusion of its two-day meeting.
Similarly, the Bank of Japan and the Bank of England kept their interest rateunchanged in the face of the financial risks involved in the Brexit referendum.
After the Federal Reserve held its benchmark, the yellow metal ticked higher and went close to its two-year highs. U.S gold and spot gold significantly climbed after the pulled back when the investors readjusted positions. Also, the SPDR Gold Trust (NYSE:GLD) and other precious metals advanced during the previous sessions.
The majority of the analysts saw the strength of the bullion and the downtrend of the greenback after the statement made by the FOMC. Further, the safe haven assets may still do well as concerns shift to the EU referendum.
However, a Singaporean-based gold dealer was surprised with the decision of the central bank. He said that the U.S. economy has been doing relatively well compared to the rest of the world and the market will now monitor the Brexit situation more closely.
Although the gains could be limited since the Fed still see the possibility of a rate hike in the coming months as the economy finds its recovery, the yellow metal may remain bullish after the Brexit vote.
Brexit Vote
Adding to the bullish tone of gold is the increasing sentiments on Brexit. On June 23, the vote whether Britain will leave the European Union is coming out and different sectors of the market have calculated the impact it could bring. Although, the central bank denied that its policy decision was influenced by the upcoming referendum, the fact that it went cautious these past few days was evident.
Meanwhile, it would be a good news to the yellow metal if Britain leaves the EU since a sizable safe haven bid in gold is expected by the precious metal analysts. Probably, the investors may pull their funds from the banks and stock market as they go for safe-haven assets. In the statement given by the chief precious metals analyst, he wrote that as a risk-off asset, gold would likely rally in the event of a leave vote.
“The argument for this is straightforward. The uncertainty spurred by an exit vote would likely elicit sufficient gold purchases to buoy prices. The link is the interconnection between the gold market and wider financial markets,” the analyst explained further.
On the other hand, as the yellow metal heads toward the north, the Asian demand for the commodity softened. Dealers in India have offered almost $48 per ounce discount as the gold prices have rallied since the start of the year. A proprietor in Mumbai revealed that Buyers are postponing purchases expecting a correction in prices and clients are calling to sell due to the surge in the price.