Gold soars, oil slumps after shock British vote to exit EU

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A trader from BGC in London's Canary Wharf reacts after Britain voted to leave the EU. REUTERS/Russell Boyce
A trader in London reacts. REUTERS/Russell Boyce

Gold rallied the most since the 2008 global financial crisis and oil and copper tumbled on Friday, as Britain’s vote to leave the European Union rattled commodities markets, forcing a selloff in risky assets and a rush to safe havens.

Sharp falls in oil, base metals and grains mimicked other financial markets, which dived as complete results from a British referendum showed a near 52-48 percent split for the UK leaving the EU.

The vote created the biggest global financial shock since the 2008 crisis, this time with interest rates around the world already at or near zero, stripping policymakers of the means to fight it.

Sterling suffered its biggest one-day fall in history, plunging more than 10 percent against the dollar to levels last seen in 1985 on fears the decision will hit investment in the world’s fifth-largest economy. [MKTS/GLOB]

“It’s certainly going to retard the kind of recovery momentum we’ve seen shaping up in Europe and for the UK it will probably negate a lot of the stimulus effects,” said Vishnu Varathan, senior economist at Mizuho Bank.

“Already we are in a situation where global demand is not forthcoming. If we take a few more steps back the effects would certainly be hardest felt in the UK followed by the EU” and the impact could spread to the rest of the world, said Varathan.

Spot gold <XAU=> was up 5.1 percent at $1,319 an ounce by 0651 GMT, after rising as much as 8.2 percent to $1,358.20, the strongest since March 2014. Gold had surged nearly 11 percent in September 2008. [GOL/]

Britain would be the first state to leave the 28-nation European Union since its foundation.

With the global economy likely to take a hit, it could curb demand for raw materials from oil to copper, dragging down prices again just as many were regaining favor in recent weeks.

“Bad economies in the UK and Europe are not good for oil and there could be a domino effect on other economies in Asia,” said IHS oil analyst Victor Shum.

Gold in terms of sterling <XAUGBP=R> and euro <XAUEUR=R> surged to the highest since April 2013.

U.S. crude <CLc1> was down $2.50, or 5 percent at $47.61 a barrel and Brent oil <LCOc1> slid $2.53, also 5 percent, to $48.38 a barrel. [O/R]

London copper <CMCU3> fell 3 percent to $4,637.50 a tonne, after touching a seven-week high of $4,795 on Thursday. Nickel <CMNI3> fell 3.9 percent and zinc <CMZN3> dropped 3 percent.

[MET/L]

Losses were limited in China-traded commodities, with rebar futures <SRBcv1> down 1 percent and iron ore <DCIOcv1> off 0.8 percent.

There could be further selling in LME base metals as London traders came in, said Daniel Hynes, commodity strategist at ANZ.

“I don’t discount some impact in the very short term, but fundamentally, once it settles down I can’t see things being too different from where we were a week ago,” he said.

LONDON (Reuters) – Oil and copper prices fell sharply and gold rallied on Friday as commodities markets reacted to Britain’s vote to leave the European Union.

Here are the views of economists and analysts on the outlook for markets:

SEBASTIEN MARLIER, SENIOR COMMODITIES EDITOR, ECONOMIST INTELLIGENCE UNIT:

“Uncertainty about the UK, EU and global economy will initially translate into weaker commodity prices. The recent upward trend in oil prices will reverse, with the price of crude falling quickly back below $40 a barrel on weaker sentiment.

“Most commodities will follow suit. Gold will be an outlier, however, and will continue its upward trend amid investor flight to safety.

“After the initial shock of Brexit wears off, fundamentals should gradually reassert their influence over the oil and commodities markets, with prices rising again as demand and supply come closer to balance. However, Brexit will lead to slightly slower European and global economic growth in the medium term. This will translate into a more gradual increase in oil demand and, in turn, the oil price.”

TOM KENDALL, ANALYST, ICBC STANDARD BANK:

“It is now highly likely that the Fed will be unable to hike rates this year.

“That alone will be supportive of gold. Add to that the need for increased central bank intervention in FX markets to smooth volatility and supply additional liquidity, and the ramifications of polarizing politics in Europe, and the outlook for gold could be quite bullish.”

“The upward momentum looks sustainable for a while yet. Gold has made a clean break now of the technical resistance of $1,308. A close above $1,333 this evening would open the way on the charts to the $1,385/92 area.”

DAVID TINSLEY, UBS ECONOMIST:

“For the UK, we believe this means sharply lower growth, a large drop in the pound and further easing from the Bank of England. For the Fed the increased global risks means we remove our call for a September rate hike.”

“Sterling has already fallen in response to the Leave vote, we have estimated previously that in the near-term it could trade to the 0.84-0.89 range. From a longer-term perspective, we think sterling could head towards parity against the euro and 1.20 against the dollar.”

TAMAS VARGA, TECHNICAL ANALYST, PVM OIL ASSOCIATES:

“The (oil) contracts look less than encouraging this morning. We have seen some logical ‘panic selling’ in the early hours of today’s trading. This selling seems to have stopped for the time being but further downward pressure cannot be excluded in the immediate future.”

HANS VAN CLEEF, SENIOR ENERGY ECONOMIST, ABN AMRO:

“Today is mainly about risk aversion – very much sentiment driven. It will be interesting how we trade next week, because then the first impact is behind us and then at some point the market should return to look at fundamentals again.”

“Today, it’s all about sentiment and everybody looking at each and saying ‘what’s next?'”

JAMES BUTTERFILL, HEAD OF RESEARCH & INVESTMENT STRATEGY, ETF SECURITIES:

“Gold could rise to $1,400 whilst other precious metals such as platinum offer attractive fundamentals.”

BJARNE SCHIELDROP, MARKETS CHIEF COMMODITIES ANALYST, SEB:

“Our view is that we have not yet seen the low oil price of the day with Brent likely to trade down towards $45 or lower before we have seen the worst of it.”

“We solidly stick to our view that the Brexit sell-off is a great buying opportunity and maybe the last great buying opportunity in this cycle. Important to note is that our ‘buy oil on Brexit sell-off’ is resonated by quite a few other banks as well, so an endured buying opportunity at low levels is unlikely.”

JONATHAN LOYNES, CHIEF EUROPEAN ECONOMIST, CAPITAL ECONOMICS:

“We maintain the view that the ultimate damage will be rather smaller than some of the more pessimistic projections have suggested.”

“The Bank of England’s Monetary Policy Committee is likely to look through the inflationary consequences of the drop in the pound and either keep policy very loose for longer or loosen it further. A cut in interest rates and an expansion of the Bank’s quantitative easing program are both possible, as well as co-ordinated action with other central banks to maintain liquidity and smooth currency movements.”

(Reporting by Christopher Johnson; editing by Jason Neely)


By Manolo Serapio Jr and Aaron Sheldrrck, MANILA/TOKYO (Reuters) – (Additional reporting by Melanie Burton in MELBOURNE and Florence Tan in SINGAPORE; Editing by Joseph Radford and Ed Davies)