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How Have Brexit and Gold’s Surge Affected Physical Demand?

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Haven bids buoy gold

Gold rose once again on June 27, 2016, and closed at $1,324.7 per ounce. It also touched a low of $1,320.8 on the day. Uncertainty about Britain’s economy and its decision to leave the European Union has forced investors to sell equities and seek safer assets.

MSCI index stocks across the European and US markets saw their worst two-day performances since the Lehman Brothers financial crisis of 2008. On June 24 alone, about $2.8 trillion was wiped off of the value of world stocks, the biggest daily loss ever. The banking sector also plummeted amid the prevailing unrest in the UK markets.

The holdings of the SPDR Gold Trust ETF (GLD), the world’s largest gold-backed ETF, rose by 2% to 934.3 tons on June 24. This was the highest level witnessed since July 2013.

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Physical demand

Due to the drastic rise in the price of gold, the world’s biggest markets, India and China, saw investors staying aloof. Many Asian consumers dislike higher prices because they see gold as a long-term store of wealth rather than a speculative investment.

Dealers in India were offering a record discount of up to $57 per ounce to the global spot benchmark on June 27 compared to $30 on June 23. Dealers in the United States, France, Germany, and Singapore reported surging demand.

Tracking silver and gold funds

The iShares Silver Trust ETF (SLV) fell by a marginal 0.12% on June 27, while the iShares Gold Trust ETF (IAU) rose by 0.63% on the same day. Mining shares that fell despite the rise in gold included Alacer Gold (ASR), Pan American Silver (PAAS), and Yamana Gold (AUY). These three companies fell by 1.6%, 3%, and 0.39%, respectively. Together, they make up 6.4% of the price changes in the VanEck Vectors Gold Miners ETF (GDX).

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