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A Brexit Could Send The Gold Price Beyond $1,400

Alpha Investments profile picture
Alpha Investments


  • According to a recent poll, the leave campaign has edged ahead with the vote just over two weeks away.
  • Economists predicted that gold could rise to as high as $2,000 if the Grexit had occurred, we feel similar could be likely in the event of a Brexit.
  • With US rate hikes looking unlikely in June or July we feel nothing can stop gold’s ascent.
  • Additionally, the British pound could have ~20% downside on an exit.

We are unabashedly bullish on gold. But we feel there is good reason to be right now. For the last few weeks economists across the world had been penciling in a US rate rise at the FOMC meeting in June or July. This was because the minutes from the Federal Reserve's April meeting revealed that if key indicators on inflation and employment stayed on a positive track, a rate hike would be "appropriate". Such was the market's belief that rates would rise, the price of gold dropped down from approximately US$1,300 to US$1,200 per troy ounce in just a few short weeks.

But all that has changed thanks to a shocking read on non-farm payrolls for May. We were expecting a deflated number due to the Verizon (VZ) strike, but we certainly were not expecting a figure of 38,000. Like the market, we had been expecting the US to add 162,000 new jobs to the economy in May, so this was a huge miss and one which really does cast doubts on whether the Fed could even consider a rate hike in the near-term. Perhaps those that said rate rises wouldn't happen until 2017 are on the money here.

By all but ruling out a rate rise in June, this leaves gold in a great position to head up to $1,400 in our opinion. The reason? The Brexit. The vote is just over two weeks away and the latest figures reveal that the vote for leaving has edged ahead by three percentage points. A lot can change between then and now, but if it stays the same way we think that the week leading up to the Brexit vote could be awfully volatile for financial markets across the world. This could lead many to seek safe havens, and what better safe haven to

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Alpha Investments profile picture
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Analyst’s Disclosure: I am/we are long GLD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (16)

Better to buy UBER....the Saudi's did !!!
Sim Symmetry profile picture
Grexit had little or no impact on gold....
Sunday July 5th was the vote and on
Monday gold traded between 1163&1175
Closing at 1170.
Gold below $1000 as Brexit causes gold to flood the market, countries liquidating for hard currency.
I doubt that happens.
Peter Palms profile picture
A Brexit would take gold to $35,000 and destroy the Rothschilds Family.

Short teem fiat currencies contain the inevitable risk of containing no collateral and their ability to repay becomes more inevitable the longer they last and this one has lasted 103 years the first three didn't make it past the first 5 year Congressional renewal vote.

If gold backed total global debt 100 percent, it would be valued at $33,900 per ounce because
the total amount of gold exhumed in the history of the world is approximately 183,600 tonnes, or 5.9 billion ounces. If we take that figure and multiply it by the closing price on June 16, $1,181 per ounce, we find that the value of all gold comes within a nugget's throw of $7 trillion.
This is an unfathomably large amount, to be sure, yet it pales in comparison to total global debt. The world now sits beneath a mountain of debt worth an astonishing $200 trillion. That's greater than twice the global GDP, which is currently $75 trillion.
If gold backed total global debt 100 percent, it would be valued at $33,900 per ounce. So Gold’s price, upon which the settlement of these debts ultimately relies is vastly understated compared to the debt that held against a fiat currency that contains no gold or any other real money. Including derivatives that would increase the price per ounce by another 6 times that amount because the global derivatives market is another $1.2 quadrillion, almost 90% is owned by the U.S. This figure is greater than the entire world’s G D P, 20 times the G D P to be exact, and should not be taken lightly. Why? Simply because of the fact that it is highly unregulated. It is so unregulated that the Congress has declared it illegal to regulate it.

Most of exhumed gold isn't ever traded. It is a safeguard against loss through inflation. Most of the naked gold shorts issued are never transacted and just expire on expiration date. This manipulation does enable the price to continue to be fixed.
TDune75 profile picture
Mr. Palms, you obviously don't live in reality, or anything remotely close to reality. The entire debt of the world has never been valued in the total amount of gold available for inspection in the world (alot less than your 183,600 tonnes), and never will be. Hence gold will never reach $33,900/ounce. Period.

Your comments are simply sensationalistic opinions looking for an audience. I've said this before and I'll say it again, if you think you're so smart, why don't you write a SA article instead of your incessantly lengthy replies to articles submitted by other SA authors??
EconFacts.com profile picture
Excellent opinion
I agree with the greater possibility of a Brexit given the economic and social undercurrents you cited plus the added trend to upset the status quo vis-a-vis our selection of Trump and Sanders as candidates. However the uncertainty, with subsequent flight to safety, which you mention would seem to be more than offset by the rise of the dollar against the Pound and the Euro. With the subsequent rise of the $US I respectfully submit the opposite effect would occur and gold would fall.
TDune75 profile picture
ejbernhart, Quite honestly, the Brits could care less about the American elections. I agree with your premise, rising $USD causing a fall in gold pricing, but I think UK Pound + Euro will also appreciate relative to gold, after Brexit gets voted down. From a Yank who's traveled extensively in & done business in Europe/UK.
I see a retest in the future of 1300 or a little lower. I would not be surprised to see the dollar up and gold week around that time.
Brexit = higher dollar = lower gold
And where does Silver go on the Brexit? Hopefully it can get back to $20 before we're all dead.
boatman profile picture
Since they will stuff the ballot box as they did on Scoxit, ensuring a remain vote, the point on the surface might be mute.....the EURO would strengthen, however, and dollar down gold up....but to challenge 1307 only.
If Brexit then euro FALLS dollar up but gold up some......probly to 1307.
so either way the local high is challenged only.
change is the only constant profile picture

Good conclusion. I agree with your conclusion but not your rationale. Brexit is, indeed, a very good possibility.

And again, brexit means a stronger probability of the the Euro's demise, which means Greek, Italian and other financially weaker members' bonds will suffer. Here, in euros, gold IS a very good bet. But, this is where we diverge, the US interest rate policy is going higher because the FED, wanting to get its influence out of the way of the US election, will raise sooner.

One data point, that will be argued as having too many conflating factors, neither makes a trend, nor makes the estimates for 2nd qtr GDP and inflation less relevant. Friday's data will not trump the FED's belief its actions are necessary NOW. And while not totally apolitical, they do not get appointed by how their actions influence EUROPEAN elections.

You may or may not know, Greenspan raised rates right after Katrina. Point? These guys, were not moved, to change their timetable, by how an act of God affected a major US city..
TDune75 profile picture
I don't agree, "change". Brexit has as much chance of passing as the Scottish referendum for independence. The Euro is undervalued and gold priced in Euros is actually a very bad bet. Don't get sucked in by the sensationalism of the press, who's only purpose is to generate ad revenues through ratings - and not responsibly & objectively reporting the news (BBC get an exempt ticket). Too many Brits wanting cheap Spanish & Greek vacations!
change is the only constant profile picture

The FT is calling brexit at almost a dead heat. The euro has moved positively against the dollar in the last two weeks, as the pound has dropped. But I think its euro hedging. Gold's value depends on the currency you use to buy it, and believe it or not, the euro, and its debt is vulnerable as more and more European countries find themselves in a Greek-like position. (Pun intended). We can agree to disagree, as I think its a good bet Britain leaves, but I (too) am not certain. Gold, for Europeans, but not necessarily Americans, is smart here. My wife is French, and much of her income is in euros. I am telling her if Brexit happens, we start buying gold with her euros. As the Euro will go the way of OPEC.
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