Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21
Gold Price Big Picture Trend Forecast 2021 - 13th Jan 21
Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus - 13th Jan 21
CONgress "Insurrection" Is Just the Latest False Flag Event from the Globalists - 13th Jan 21
Reflation Trade Heating Up - 13th Jan 21
The Most Important Oil Find Of The Next Decade Could Be Here - 13th Jan 21
Work From Home £10,000 Office Tour – Workspace + Desk Setup 2021 Top Tips - 12th Jan 21
Collect a Bitcoin Dividend Without Owning the King of Cryptos - 12th Jan 21
The BAN Hotlist trade setups show incredible success at the start of 2021, learn how you can too! - 12th Jan 21
Stocks, Bitcoin, Gold – How Much Are They Worth? - 12th Jan 21
SPX Short-term Top Imminent - 12th Jan 21
Is This The Most Exciting Oil Play Of 2021? - 12th Jan 21
Why 2021 Will Be the Year Self-Driving Cars Go Mainstream - 11th Jan 21
Gold Began 2021 With a Bang, Only to Plunge - 11th Jan 21
How to Test Your GPU Temperatures - Running Too Hot - GTX 1650 - Overclockers UK - 11th Jan 21
Life Lesson - The Early Bird Catches the Worm - 11th Jan 21
Precious Metals rally early in 2021 - 11th Jan 21
The Most Exciting Oil Stock For 2021 - 11th Jan 21
Financial Market Forecasts 2021: Navigation in Uncharted Waters - 10th Jan 21
An Urgent Message to All Conservatives, Right-Wingers and Patriots - 10th Jan 21
Despite Signs to the Contrary, Gold Price at or Near Top - 10th Jan 21 -
Ultimate Guide On The 6 Basic Types Of Index Funds - 10th Jan 21
Getting Vaccinated at TESCO - Covid-19 Vaccinations at UK Supermarket Pharmacies and Chemists - 10th Jan 21
Cheers for the 2021 Stock Market and These "Great Expectations" - 9th Jan 21
How to Plan Your Child With Better Education - 9th Jan 21
How To Find The Best Casino - 9th Jan 21
Gold Is Still a Bargain Buy - 8th Jan 20
Gold Price Set to Soar as Hyperinflation Looms - 8th Jan 21
Have Big Dreams? Here's How to Pay for Them - 8th Jan 21
Will the Fed Support Gold Prices in 2021? - 8th Jan 21
Stocks trading strategies for beginners - 8th Jan 21
Who is Buying and Selling Stocks in 2021 - 8th Jan 21
Clap for NHS Heroes 2021 as Incompetent Government Loses Control of Virus Again! - 8th Jan 21
Ultimate Gaming and Home Working PC System Build 2021 - 5950X, RTX 3080, Asus MB - Scan Computers UK - 7th Jan 21
Inflation the bug-bear looking forward through 2021 - 7th Jan 21
ESG ETF Investing Flows Drive Clean Energy to Fresh Highs - 7th Jan 21
5 Financial Market Surprises in 2021 - 7th Jan 21
Time to ‘Reset’ Your Investment Portfolio in 2021? - 7th Jan 21
Bitcoin Price Collapses almost 20% at the start 2021 - 7th Jan 21
Fed Taper Nervous Breakdown - 6th Jan 21
What Will the U.S. Dollar Ring in for 2021? - 6th Jan 21
Stock market frenzy- Ride the bandwagon but be sure to take along some gold coins - 6th Jan 21
Overclockers UK Custom Build Gaming System Review Heat Test and Final Conclusion - 6th Jan 21
Precious Metals Resuming Bull Market, Gold, Silver, GDX Trend Forecasts 2021 - 5th Jan 21
Trump’s Iran-COVID-Gate Anniversary  - 5th Jan 21
2021 May Be A Good Year For The Cannabis / Marijuana Sector - 5th Jan 21
Stock Market Approaching an Important Target - 5th Jan 21
Consumer Prices Are Not Reflecting Higher Inflation; Neither Is The CRB - 5th Jan 21
NEW UK Coronavirus PANIC FULL Lockdown Imminent, All Schools to Close! GCSE Exams Cancelled! - 4th Jan 21
The Year the World Fell Down the Rabbit Hole - 4th Jan 21
A Year Like No Other for Precious Metals… and Everything Else - 4th Jan 21
The Stocks Bull Market is Only Half Completed - 4th Jan 21
An In- Depth Look At Gold Price Trend - 4th Jan 21
Building America Back After a Dark Covid Winter - 4th Jan 21
America's Dark Covid Winter Ahead - 4th Jan 21
Buy a Landrover Discovery Sport in 2021? 3 Year Driving Review - 3rd Jan 21
Stock Market Major Peak in Early April 2021 - 3rd Jan 21
Travel and Holidays 2021 - Flight Knight Cabin Bag Review - 3rd Jan 21
�� Happy New Year 2021 Fireworks and Drone Light Show from London and Sheffied - BBC�� - 2nd Jan 2
The Next IMMINENT Global Catastrophe After Coronavirus - 1st Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

The Impact of Brexit on the U.S. Economy and Gold Market

Commodities / Gold and Silver 2016 Aug 26, 2016 - 09:17 PM GMT

By: Arkadiusz_Sieron

Commodities

In the previous edition of the Market Overview, we analyzed briefly the consequences of Brexit vote. We stated that “the most important economic effect of the Brexit vote is so far a significant rise in uncertainty”. It applies particularly to the political future of Great Britain (Will the UK disintegrate? Will the UK really exit from the EU? When and how will it happen?) and the European Union (Will the EU break apart?). However, Brexit could also hurt the U.S. economy. This is why we would like to focus on the impact of Brexit on the U.S. economy and the gold market.


The rise in risk-aversion and any fall in the global stock market will hit consumer and business sentiment in the U.S., and depress consumer spending and business investment. Therefore, the U.S. economic growth would be expected to fall, but the impact should not be substantial. Both the Bank of America and Economist Intelligence Unit cut their forecasts for the U.S. growth rate in 2016 by 0.2 percentage points. It seems a minor reduction, but investors should remember that the pace of growth is already anemic. And Brexit is another in a long string of headwinds which America faces. Although the British referendum did not trigger a “Lehman moment” in the U.S. financial markets (the market did not freeze and the negative effects on prices were less significant), the risk of recession over the next 12 months rose after the Brexit vote. According to the Deutsche Bank, there is 60-percent probability that the U.S. will enter a recession the next year; however other estimates are much lower. The slower pace of economic growth and higher odds of recession should support the price of gold.

Many American firms operate in the UK as they consider it as the gateway to free trade with the EU. Actually, the U.S. is the largest single investor in the UK. Therefore, the Brexit would jeopardize their business and investments, and reduce their revenue. Worse corporate results would intensify negative sentiment in financial markets. It sounds positive for the gold market.

The uncertainty induced by the Brexit vote led to the flight to safety, and to lower yields of government bonds and the appreciation of the U.S. dollar. The stronger greenback would also hit some companies, exacerbating profit recession, and deter the Fed from hiking. The rise in the U.S. dollar should be theoretically negative for the shiny metal; however gold rallied simultaneously with the greenback, as one can see below.

Chart 1: Gold prices (yellow line, left axis, London P.M. Fix), the broad U.S. dollar index (green line, right axis) and U.S. dollar index against major currencies (red line, right axis).

The chart shows two things. First, in the time of global turmoil the price of gold may rise together with the U.S. dollar, as both are considered safe havens against European or global risks. Second, it demonstrates that gold has indeed acted strongly in light of the Brexit voting – it ignored the U.S. appreciation (as well as the rebound in the stock market from the post-Brexit levels). Actually, gold shrugged off much good economic news in the past several weeks, including a surprisingly strong June jobs report. It may be a signal that gold is in the early stages of a bull run, but there are many other factors that have to be assessed to determine that.

The Fed is not likely to hike interest rates in the near future. July is gone. The September move seems to be off the table (as of July 25, the market odds are about 15 percent), as it still may be too early to fully investigate the effects of Brexit and too close to the U.S. elections. The Fed is also expected to refrain from hiking during its November meeting, which is just six days before the U.S. elections. December remains the only option (but as of July 25 the market odds of a hike at the end of the year are about 45 percent), unless there came to be financial turmoil after the US election. In fact, some investors expect a rate cut this year. The Fed’s likely inaction should undermine its credibility and support the price of gold (naturally, to the extent that it surprises the investors).

Last but not least, Brexit may give Donald Trump a boost. The outcome of the British referendum signals the high level of global economic anger against the elites and strong fear over the impact of immigration – the two main drivers of Trump’s political success. Actually, his chances increased after the Brexit vote according to RealClear Politics’ polls. Investors should be aware that his rhetoric is very similar to one used in the “Leave” campaign, so the polls may underestimate the support for him, as it was in case of British referendum. The rise in the likelihood of Trump becoming the president should be positive for the gold market.

The bottom line is that Brexit can affect not only the UK and the EU, but also the US, which is crucial for the gold market, as the shiny metal tends to respond stronger to U.S. developments. Although the trade with the U.K amounts to less than 1 percent of the U.S. GDP, Brexit could affect the American economy and politics in other ways. The two key channels are the appreciation of the greenback, and the rise in uncertainty and stock market volatility. The latter is clearly positive for the yellow metal, while the former has been no longer a drag on the gold rally in the past several weeks. The reasons behind the break-up of negative correlation between the shiny metal and the U.S. dollar are: 1) the flatter expected path of the federal funds rate and 2) the bullish sentiment towards gold. Although gold seems to be shrugging off any good news recently, investors should be aware that fears about Brexit’s consequences may be a bit overblown, so gold could lose its momentum. However, looking at European banks, we see more downside than upside risks connected with the Brexit vote and thus more benefits than threats for the price of gold (based on Brexit alone, that is).

Thank you.

If you enjoyed the above analysis and would you like to know more about the gold ETFs and their impact on gold price, we invite you to read the April Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron
Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules