Direxion Shares Exchange Traded Fund Trust has had an impressive performance in the first two sessions of this week in response to the recent uptrend in gold. However, investors are looking to the Fed statement and upcoming Brexit vote in order to gain an insight into knowing how much longer the rally in the yellow metal will continue.
The yellow metal started 2016 on an impressive note but the bullion ran into turbulent waters at the start of the second quarter. However, the dismal May jobs report posted by U.S. employers has provided respite for bullion investors. More so, the equity markets are facing increased volatility ahead of next week’s referendum in which UK will vote on whether to leave or stay in the EU. The weak job data and concerns about the Brexit vote has increase the safe-haven appeal of gold in recent times.
Gold crawls towards six-week high
Direxion Shares Exchange Traded Fund Trust rose to an intraday high of $108.07 before it lost 6.13% to close at $99.56. The ETF climbed to that intraday high because of a renewed bullish momentum in gold prices. On Tuesday, the yellow metal had bullish momentum in which spot gold was up to an intraday high of $1,289.80 an ounce. Futures for August delivery was up 0.1% to settle at $1,288.10 an ounce.
As mentioned earlier, the key driver of the bullish momentum for the yellow metal is the growing investors’ concerns ahead of the Brexit vote. Rob Halliday-Stein, founder of BullionByPost Britain’s biggest online bullion dealer notes that “gold rises on volatility and we’ve never had a day as volatile as a Brexit day in the gold price market.”
In fact, gold priced in sterling rose to almost touch a 3-year high at £913.09 an ounce because the pound has fallen to its lowest level in 8 weeks. ETF Securities analyst Martin Arnold notes that “The Brexit vote is obviously key to gold’s appreciation because of the polling suggesting the ‘Leave’ campaign is gathering momentum, creating uncertainty over the outcome.”
Fed meeting to provide insight on the outlook for bullion
Direxion Shares Exchange Traded Fund Trust are soaring ahead of the Brexit vote but the interest rate environment in the U.S. might dampen investors’ enthusiasm. U.S. Federal Reserve officials are having a policy meeting holding today and tomorrow and the outcome of the meeting could have an effect on the outlook for the yellow metal going forward.
The consensus sentiment is that the fed won’t raise interest rates this month because the poor May jobs report suggests that the U.S economy has not recovered as much as previously assumed. However, the yellow metal might face downward pressure if the Fed goes against the grain to raise interest rates.
On the contrary, the yellow metal will maintain its current gain and possibly trudge higher if the Fed leaves interest rates unchanged. More so, the bullion should climb higher if the Fed is unclear about its timing for raising the rate. Interestingly, the yellow metal could soar to previous highs above $1,300 an ounce if there is a strong wording against raising interest rates in July. Mark O’Byrne,vdirector of Dublin-based gold dealer GoldCore notes that “The ‘no hike’ is likely being priced in but we could see gold hit the $1,300 level prior to a correction on the way to the next level of resistance at $1,400.”