Direxion Shares Exchange Traded Fund Trust will be starting today’s session from a position of strength in line with recent developments in the gold trade. The ETF is already up 3.48% in pre-market trading to $104.25 after sliding 9.10% to close at $100.74 on Thursday. The referendum holding in UK next week about whether the UK will remain or leave the EU has been influencing the price of gold in recent times.
Many people believe that the Brexit of UK from the EU would open the proverbial Pandora’s Box on the global economy. Hence, many people are buying gold to take up safe haven positions ahead of the vote. Of course, the increase in the safe-haven demand for bullion is causing the price of the yellow metal to rise.
Fed hinges rate hike decision on Brexit vote
Another factor that has been affecting the price of gold and Direxion Shares Exchange Traded Fund Trust in recent times is the proposed increase in U.S. interest rates. The U.S. Federal Reserve has been doing lots of back and forth over its timing on raising interest rates and the uncertainty has introduced much volatility into the markets.
On Wednesday, Fed chair Janet Yellen hinted that the Fed would exercise caution on raising interest rates until after the Brexit vote. More so, a polls conducted by Bloomberg revealed that six fed officials now envisage a single rate hike this year up from one official in March. The decision to hold off raising interest rates provided bullish tailwinds for the yellow metal because an increase in interest rate often makes gold less attractive to investors.
The yellow metal started Thursday on an impressive note as it forged ahead on the track to end the week the biggest gains in three weeks. On Thursday, gold breached $1,300 an ounce and it touched a peak of $1,315.55 an ounce to mark the highest point since August 2014. However, the bullish ascent in the bullion suffered a blow after news broke that that the Brexit vote might have been weakened.
Weakness in Brexit vote weakens gold
The Brexit vote suffered a setback yesterday when the murder of U.K. Labor Party lawmaker, Jo Cox, led to the suspension of campaign ahead of the Brexit referendum next week. Jo Cox was one of the most vocal advocates pushing for Britain to remain in the EU and her murder paints the Brexit camp in bad light for all intent and purposes.
The murder of Jo Cox and the subsequent suspension of campaigns ahead of the referendum might weaken the Brexit camp. Analysts have started to posit that the failure of the Brexit vote might weaken the demand for gold and Direxion Shares Exchange Traded Fund Trust . George Gero, a managing director at RBC Wealth Management noted that “The takeaway is that if there’s no Brexit, then it would mean the need for haven buying of gold will lessen.”
ANZ commodity strategist Daniel Hynes notes that “Leading into the Brexit vote, we expect gold to remain around current levels between the $1,270-$1,300 range. But after then all bets are off as everything depends on the results of the referendum… If UK does leave the EU we could see prices touching $1,400 in the immediate aftermath of the referendum”.