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Gold surges to 28-month highs amid Brexit concerns, ahead of Fed minutes

Published 07/06/2016, 12:35 PM
Updated 07/06/2016, 01:33 PM
Gold pared some gains on Wednesday after soaring above $1,375 to hit a 28-month high

Gold pared some gains on Wednesday after soaring above $1,375 to hit a 28-month high

Investing.com -- Gold surged to fresh 28-month highs, ahead of the release of the minutes of the Federal Reserve's June meeting on Wednesday afternoon, amid renewed concerns on the long-term ramifications of last month's Brexit decision.

On the Comex division of the New York Mercantile Exchange, Gold for August delivery traded between $1,357.50 and $1,377.45 an ounce, before settling at $1,367.50, up 8.35 or 0.63% on the session. Over the first seven months of 2016, Gold has surged nearly 30% as investors have hedged against widespread uncertainties surrounding the global economy and have responded to broad signals from the Fed of a delayed interest rate hike. More recently, Gold has jumped more than 8% since polls closed in the U.K. on June 23 in the historic referendum.

Gold likely gained support at $1,323.50, the low from June 8 and was met with resistance at $1,391.40 the high from March 17, 2014.

Metal traders continued to closely monitor currency fluctuations in the Pound after the British currency fell to an intraday low of 1.2797 against the U.S. Dollar, dropping below 1.28 for the first time in more than three decades. Earlier on Wednesday, Henderson and Columbia Thread Needle became the latest major U.K. property funds to halt redemptions, citing exceptional liquidity pressures in the wake of the Brexit vote. It followed similar moves by M&G Property Portfolio, Aviva (LON:AV) and Standard Life (LON:SL) in recent days. In total, leading U.K. commercial property funds have locked up approximately £13 billion in investments, according to The Guardian. The actions exacerbate fears that commercial property values nationwide will fall precipitously if the U.K. decides to invoke Article 50 of the Lisbon Treaty, triggering a two-year formal process to leave the European Union.

Market players await the release of the minutes from the Federal Open Market Committee's (FOMC) June meeting on Wednesday afternoon for further indications on the U.S. Central Bank's long-term rate outlook. Last month, the FOMC voted unanimously to leave rates steady amid weakening labor market conditions and the threat of a U.K. departure on the EU. The CME Group's (NASDAQ:CME) Fed Watch tool has now priced out an interest rate hike for the remainder of the year. Since the Fed approved a 25 basis point hike last December, the FOMC has left the target range of its benchmark Federal Funds Rate between 0.25 and 0.50% at each of its four meetings this year.

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.

Elsewhere, investors continued to pile into safe-haven assets such as Gold and government bonds in broad risk-off trade. Yields on the U.S. 30-Year fell to an all-time record low at 2.098%, while the entire Swiss yield curve fell into negative territory after yields on the Switzerland 30-Year dropped to an intra-session low of Minus-0.101. In China, meanwhile, the yuan fell to a fresh five-year low against the Dollar (6.6797), after the nation's Foreign Exchange Trade System said it is implementing new reserve requirements on onshore forward yuan positions. As part of the regulations, foreign firms will be required to place at least 20% of the prior month's yuan forward settlement under reserves beginning on Aug. 15.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, pared earlier gains after hitting an intraday high of 96.62. In U.S. afternoon trading, the index stood at 96.22, down 0.05% on the session. Although the index is up by more than 2.5% since the Brexit outcome, it is still down approximately 4% from its peak of 100.55 in early-December.

Dollar-denominated commodities such as Gold become more expensive for foreign purchasers when the dollar appreciates.

Silver for August delivery gained 0.241 or 1.21% to $20.148 an ounce. Earlier this week, silver futures surged above $21.20 to hit fresh two-year highs.

Copper for September delivery fell 0.030 or 1.35% to $2.154 a pound.

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