Gold builds on gains, heads for best first-half in more than 40 years
Gold edged higher Wednesday, trading near its highest level in more than two years amid long-term financial uncertainty following Britain’s surprise vote to leave the European Union.
The precious metal traded 0.33% higher at $1,322.20 an ounce in midmorning London and it is heading for its best first-half in more than four decades as investors continue to ditch risk assets and turn instead to havens.
According to analyst Daryl Guppy, there is a strong probability gold will move above $1,340 towards resistance near $1,580. But he warns this upward trend is hazardous and volatile, as it comes with a change in the structure of the gold market.
“This structural change in the market means gold demand is now also closely linked to brokerage account margin calls as gold exchange traded funds (ETFs) are a derivative trading instrument,” he wrote for CNBC.
“Such high exposure to margin calls is a great concern during periods of high market volatility. It means that the gold price may react much more quickly in either direction than the fundamentals might suggest, “ Guppy noted, adding that it also means price targets are reached faster than usual, and that retreats are more abrupt.
Gold, often perceived as a hedge against economic and financial risk, is expected to remain well above the lows of around $1,253 seen in the run-up to the referendum, as markets priced-in a vote to remain in the bloc.