Why Have Gold Prices Risen Sharply This Month?

June 21st, 2016 by Trefis Team

Gold prices have risen around 6% since the start of the month to close at $1,282 per ounce on June 20th, with prices shooting to as high as $1,311 per ounce in the interim.

Why Have Gold Prices Risen Sharply In June

The sharp increase in gold prices in a short time is largely due to a spike in the investment demand for gold as the June 23 referendum on the UK’s EU membership looms. Gold is primarily considered a safe haven asset from an investment point of view, with investor interest in the yellow metal rising in times of economic uncertainty. The uncertainty created by the possibility of the UK’s exit from the EU has driven investors towards safe haven assets such as gold, propping up gold prices. If the UK elects to exit the EU, gold prices could rise further as a result of a flight of capital towards safe haven assets. Should the UK continue to remain a part of the EU, there is likely to be a correction in gold prices as uncertainty abates.

Why Have Gold Prices Risen Sharply In June 1

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Gold prices have averaged $1,216 per ounce so far this year, around 5% higher than the average for the full year 2015. Global economic weakness, the prevalence of negative interest rate regimes in Europe and Japan, as well as the Fed’s dovish stance pertaining to potential interest rate hikes, have bolstered the investment demand for gold. Since gold as an investment class offers no returns besides capital gains, a low interest rate regime bolsters the investment demand for gold. As per data from the World Gold Council, investments in gold ETFs rose sharply in Q1, as illustrated in the table shown above. Fears of a British exit from the EU have boosted prices further. A clearer picture of the trajectory of gold prices for the rest of the year should emerge post the June 23 referendum.

Have more questions about Barrick Gold? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Barrick Gold

 

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