Investing.com -- Gold retreated from 27-month highs but remained supported as a safe-haven asset on Friday, as leading central banks rushed to soothe global markets following a surprising decision by voters in the U.K. to approve a referendum that paves the way for a British departure from the European Union.
On the Comex division of the New York Mercantile Exchange, Gold for August delivery closed at $1,319.75, up $56.55 or 4.48% on the session. At session-highs, the front month contract for Gold surged nearly $100 an ounce to $1,362.45, its highest level since March, 2014 after major broadcasting networks called for a resounding victory by the Leave campaign just after 1:00 a.m. Eastern Standard Time. Had the precious metal held onto the gains, Gold would have posted its strongest one-day session since the Financial Crisis.
Gold likely gained support at $1,247.30, the low from June 8 and was met with resistance at $1,344.00, the high from February 26, 2014.
In London, U.K. prime minister David Cameron announced intentions to step down by October after U.K. voters decided to leave the EU by a 52-48% margin. Hours earlier as a Leave vote became increasingly likely, the Pound fell as much as 10% against the U.S. dollar to an intraday low of 1.3231, its lowest level in three decades. While top global central bankers convened in Basel to execute an emergency contingency plan, Bank of England governor Mark Carney said the Bank has set aside £250 billion of additional liquidity and will act if necessary to help support the British economy.
"Inevitably, there will be a period of uncertainty and adjustment following this result," Carney said on Friday morning. "There will be no initial change in the way our people can travel, in the way our goods can move or the way our services can be sold."
"It will take some time for the United Kingdom to establish new relationships with Europe and the rest of the world, some market and economic volatility can be expected as this process unfolds. But we are well prepared for this…The Bank will not hesitate to take additional measures as required as those markets adjust and the UK economy moves forward."
As investors exited from their positions in the Pound and euro area financial stocks, they engaged in a flight to safety to Gold, low-risk government bonds and safe-haven currencies such as the Japanese Yen, Swiss Franc and the U.S. Dollar. At one point, USD/JPY plunged to 99.02, its lowest level since November, 2013, before rallying to 102.28 (down 3.66%). In Tokyo, Bank of Japan governor Haruhiko Kuroda said the Finance Ministry will monitor currency fluctuations more carefully, while the BOJ had swap lines in place to offer liquidity, if needed.
Meanwhile, EUR/CHF fell to a 10-month low at 1.0623, before paring the losses when the Swiss National Bank (SNB) confirmed that it intervened in foreign exchange markets and sold the safe-haven Franc to help stabilize the currency. Earlier, the Swiss Franc staged its strongest one-day rally since the SNB removed its currency peg to the euro last January.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, rose more than 2.5% to a three-month high at 96.70, before falling back to 95.59 in U.S. afternoon trading. The index posted its strongest one-day move in more than five years.
On Friday morning, the Federal Reserve said that it is carefully monitoring market developments in cooperation with other central banks, in the wake of the results of the U.K. referendum. It came days after Fed chair Janet Yellen told lawmakers on Capitol Hill that a U.K. departure from the EU could have serious repercussions for financial markets worldwide.
"The Federal Reserve is prepared to provide dollar liquidity through its existing swap lines with central banks, as necessary, to address pressures in global funding markets, which could have adverse implications for the U.S. economy," the U.S. central bank said in a statement.
Last week, the Federal Open Market Committee (FOMC) said the potential of a victory by the Leave campaign played a role in its decision to leave interest rates unchanged at its June monetary policy meeting. The FOMC has held the target range of its benchmark Federal Funds Rate at a level between 0.25 and 0.50% in each of its four meetings this year.
The CME Group's (NASDAQ:CME) Fed Watch tool responded to Friday's market developments by taking a September rate hike off the table. The CME Group also said there is a 20.9% probability the FOMC could raise the Fed Funds Rate to 0.50-0.75% in December, down from 42.6% one day earlier. In addition, the CME Group said there is a 10.5% chance the FOMC could lower rates to the zero-bound range in September. Last December, the FOMC halted a seven-year zero interest rate policy by raising short-term rates for the first time in nearly a decade.
Investors who are bullish on Gold are in favor of a gradual tightening of monetary policy by the Fed. Gold, which is not attached to interest rates, struggles to compete with high-yield bearing assets in rising rate environments.
Silver for July delivery surged 0.402 or 2.32% to $17.765 an ounce.
Copper for July delivery fell 0.051 or 2.38% to $2.111 a pound.