Gold and Direxion Shares Exchange Traded Fund are starting the new week from a position of strength in continuation of the gains from last Friday. On Friday, investors observed decent gains in the bullion after equities lost their footing amidst the brouhaha of a weakness in the global economic outlook. This morning, spot gold was up 0.10% to $1.317.16 before it made a session high of $1,319 an ounce.
Investors have been losing hope in the bullish prospects of the yellow metal after the bullion posted losses in four out of the last six sessions. Peter Hug, Kitco Metals global trading director thinks that investors should not be afraid when the yellow metal seems to lose its footing. In his words, “I continue to argue that the metals complex remains constructive and dips should be seen as opportunities to enter the market”.
Why is gold bursting forth with gains?
Gold and Direxion Shares Exchange Traded Fund are set to enjoy bullish tailwinds in the new week because the realities of the Brexit vote is about to start sinking in. On Sunday, British Prime Minister, Theresa May, belled the cat in setting out the timing for when Britain will start the process of exiting the EU. The Brexit vote in which UK voters decided to leave in the EU in an historical referendum caused the yellow metal to book massive gains in June.
Britain’s exit from the EU has weakened the fabric of the EU’s existence because other countries will start reexamining the pros and cons of being a part of the EU. More so, London is the financial center of the world and Britain’s exit from the EU might trigger instability in the financial sector. In addition, the Brexit vote will encourage a louder clamor for independence from regions such as such as Scotland in UK and Catalan in Spain.
In essence, the Brexit vote has triggered a new age of uncertainty in the global geopolitical and economic landscape; hence, investors have many reasons to seek refuge in gold. However, in the last one month, investors were less worried about Brexit and the prevailing opinion is that the volatility of the Brexit vote has been baked into the price of the yellow metal. In fact, the bullion had lost 0.94% in the last one month.
However, news about Prime Minister May’s move to trigger the actual exit of Britain from the EU caused the Pound Sterling to fall to three- year lows against the Euro. More so, the Pound was down to three-month lows against the dollar.
Economic data suggests that that the rally in gold is not real
Despite the fact that gold and Direxion Shares Exchange Traded Fund have better prospects this week; analysts are not convinced that the rally is here to stay. The U.S. Federal Reserve has adopted a dovish stance on interest rates but the decision to raise/lower interest rates is data dependent. Hence, the BLS September Jobs Report due on Friday could determine how the fed will act on Interest rates going forward.
In addition, this week is loaded with economic data that could move the needle on the Fed’s plan for raising interest rates. The ISM U.S. Manufacturing Index has already shown that U.S. Manufacturing index increased to 51.5% in September to mark a sharp recovery from the decline reported in August.