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Why Gold Is Soaring on Brexit Wings

PART:
1 2 3 4 5 6
Part 4
Why Gold Is Soaring on Brexit Wings PART 4 OF 6

Goldman Changes Course after Brexit, Recommends Gold

Goldman on gold

Goldman Sachs has been infamous this year for its recommendations on gold. About four months ago, Goldman suggested its clients short gold when it was trading around $1,205. However, gold rallied to $1,300 soon after, forcing Goldman to close at a loss about two months later. Goldman analyst Jeff Currie suggested the effect of spillovers into US interest rate markets and flight-to-safety sentiment could help gold in the event of a Brexit. The Brexit vote did occur, so Goldman Sachs raised its forecast for gold.

Goldman Changes Course after Brexit, Recommends Gold

Goldman Changes Course after Brexit, Recommends Gold

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The above chart shows gold performance over the past three months and how US interest rate scenario gripped the bullion market. Once the Fed decided to put off the rate hike further, gold started increasing. The Brexit vote, however, gave gold wings on Friday. Gold touched a new peak of the past two years. The long white bar on June 24 has likely shifted gold to an all new territory.

Leveraged funds

The rise in gold and other precious metals also boosted leveraged mining funds like the Direxion Daily Gold Miners Fund (NUGT) and the Proshares Ultra Silver ETF (AGQ). These two ETFs climbed 17.6% and 5%, respectively, on Friday. Royal Gold (RGLD), New Gold (NGD), and Pan American Silver (PAAS) also increased 3.5%, 7.8%, and 0.4%, respectively. These three miners together contribute about 8.2% to the fluctuations in the VanEck Vectors Gold Miners Fund (GDX). The GDX indicator also rose 5.9%.

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