Uncertainty Over Brexit Could Send Gold to New Yearly High

Safe haven buying helped drive August Comex Gold to a three-week high on Friday, putting it on track for a second straight weekly rise.

The initial catalysts behind the rally were the weaker-than-expected U.S. Non-Farm Payrolls report on June 3 and dovish commentary from Fed Chair Janet Yellen early last week, which dimmed hopes for an imminent rise in U.S. interest rates.

Prices were also supported and driven higher by worries over Britain’s June 23 referendum which will decide whether the UK remains a member of the European Union or leaves. This factor may continue to support gold over the next two weeks.

Basically, traders are no longer worried that the Fed will raise rates on June 15. They are more concerned about the UK referendum, which is likely to help increase demand for gold. If the Fed refrains from raising rates in June and strongly hints that a July rate hike is off the table too, then that should support gold, also because the dollar would weaken.

Technically, the main trend is down according to the weekly chart, but momentum has clearly shifted to the upside. A similar move like we had last week will drive the market through $1308.00, turning the main trend to up. The next objective over this level is $1325.00.

Based on the weekly close at $1276.30, the market will have to grind through a series of downtrending Gann angles before reaching $1308.00. These come in at $1284.00, $1296.00 and $1302.00. All are untested and not expected to provide major resistance if the market is being news driven. They are basically going to be potential profit-taking levels.

On the downside, the key uptrending angles come in at $1265.50, $1257.40 and $1233.50.

The major support or pivot area is the short-term retracement zone at $1267.30 to $1254.70. Holding this zone will be the key to the rally.

This week will be all about momentum and the price action will likely be news driven by the Fed and Brexit. The Fed is likely to pass on a June rate hike, but a July rate hike is still a possibility. If the Fed statement hints that a July hike is off the table then gold should rise further.

If new Brexit polls continue to point towards a UK exit from the European Union then gold should spike higher. If the polls shift back the other way, this may give investors an excuse to book profits, but not necessarily put in a top because of the lingering uncertainty.