As the world awaits Britain’s referendum vote to the leave the European Union, investors are flocking to safe havens. Gold jumped to a month-high last week with uncertainty over the coming election leaving investors anxious. Additionally, the much anticipated Federal Reserve meeting this month is adding to the uncertainty.
British voters will decide on the 23rd of this month whether the UK should stay in the EU. The debate over the consequences of a Brexit has raged over the past several months. Many pro-EU campaigners warn of the damage an exit would cause to Britain’s economy. The consensus among the business community is that a Brexit would increase financing costs, damage trade and depreciate the pound. Considering Britain’s role in the world, a majority vote to leave could add further trouble to the already waning global economy.
Gold, a traditional investment during periods of economic distress, rose for a fourth straight day Monday. Prices on the New York Mercantile Exchange jumped 0.9 percent to $1,286.90 a troy ounce. The commodity has also benefitted from a weakened dollar. An investment into gold is essentially a bet against the dollar, as both are considered standard global safe havens. If the dollar begins to fade, investors look to gold.
After raising interest rates in December, the Federal Reserve hinted at future rate hikes this year. However, in the quarter, after rates were increased, the US economy began weakening due to pressure from subdued trading conditions, investment and demand from across the globe. Speculators pushed back their expectations of future rate hikes, as did the Federal Reserve, sending the dollar down. An index of the dollar compared to a basket of the main global currencies began slipping from a year high in January and remains near a yearly low. Speculators have mostly dismissed the idea of a June rate hike, keeping the dollar at subdued levels and pushing gold higher.