Gold inter-markets: might continue to benefit from the prevalent uncertain environment
|After dropping to $1305 on Tuesday, Gold resumed its bullish momentum on Wednesday and erased majority of its losses recorded in the previous trading session to currently trade around $1320 region.
Despite of a global risk-on rally, depicted by buoyant equity markets, gold seems to attract safe-haven flows amid uncertainty surrounding the economic implication of last week's historic UK-EU referendum. Moreover weaker US Dollar, as measured by the US Dollar index, is also acting as a supportive pillar for the ongoing bullish momentum.
However, the metal is still trading around 3% lower from a two-year high level of $1358 touched last week after the unexpected outcome of the Brexit referendum that led to a sharp spike in the Volatility Index (VIX), Wall-Street's preferred gauge of market uncertainty that measures the level of fear in financial markets. Friday's rise was accompanied by a brutal sell-off in the broader US equity index (S&P 500) and sharp slide in the USD/JPY pair, which was accompanied by a drop in US long-term (30-years) treasury yields.
Since then, the VIX has declined steadily that supported risk-on trade and helped S&P 500 to recover swiftly on Tuesday. However, a tepid bounce in the USD/JPY pair and lower US treasury yields points to the cautious stance, which raises questions over the sustainability of the current recovery in equity markets. Moreover, given the uncertain environment that might now hinder global economic growth, investors would see every dip as an opportunity to add on to their bullish bets on safe-haven assets and keep gold prices higher in the near-term.
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