BREXIT Day – Markets Becalmed – Gold Panic Prelude – Trading Hours

BREXIT Day and the UK EU referendum is upon us today and investors are expecting continued choppy trading in financial markets in the coming hours. The City of London is bracing itself for potentially the most volatile night since the sterling devaluation on Black Wednesday.

Gold in GBP – 5 Years

This morning, as British voters headed to the polls, sterling hit a 2016 high versus the dollar and gold in sterling terms fell to £844 per ounce, down 10% from a high of £928.85 per ounce just 5 trading days ago on June 16.

While the gold market is on the surface becalmed, there has been very significant high net worth and institutional demand in recent weeks and this is leading to an, as of yet, unacknowledged and unappreciated “panic” in the interbank gold market due to unprecedented conditions and “supply issues” as we revealed yesterday.

Gold and silver may come under further selling pressure in the short-term. However, any weakness is likely to be short-term due to the increasing risks of a global recession, risks posed by negative interest rates and bail-ins and many geo-political threats throughout the world. Illiquidity and supply issues in the London Good Delivery inter-bank gold market also bode very well for gold.

A vote to stay could be considered priced in to markets now. In the event of a leave vote, stock markets will sell off sharply and safe haven gold and silver will likely rally especially against the euro and sterling.

World stocks remain very buoyant despite the risks and have climbed for a fifth day running. Risk appetite remains high and markets appears somewhat complacent about the still real risks of a vote to leave the EU and indeed other global risks.

Despite the most recent polls clearly showing the result is set to be extremely close, markets are very much pricing in a vote to remain. This creates the real risk that a vote to leave leads to dislocations, sharp corrections and potentially crashes in stock markets. A Brexit vote would likely lead to a very sharp correction, with the FTSE 100 plummeting. Swiss bank UBS has warned of sharp falls to levels of between 4,900 and 5,500, wiping off around £350 billion from the market.

The official result is not expected until 0600 GMT or later on Friday morning. The markets will begin to react, potentially very rapidly, from when the first results are announced in or around 0100 GMT, especially if they are showing the leave camp in the lead.

Some hedge funds have commissioned their own exit polls in order to get vital intelligence ahead of the market. Thus, sharp moves ahead of the official results may be perceived as certain market participants having advance knowledge of the result. Market manipulation and the usual trading ‘shenanigans’ are to be expected. Another reason to avoid the short term noise and focus on the long term and the importance of owning quality, value assets in a diversified portfolio.