Safe haven assets, gold and silver in particular, tumbled on Monday morning as the financial market worldwide remained closed for the New Year holiday. The tight trading session for the gold and silver was extended as the US dollar mixed at the end of 2016. Did the precious metals lose their shine?
During the last session, gold futures on the Commodity Exchange dropped 0.55 percent to $1,151.70 per troy ounce for February contracts while silver lost 0.06 percent to $15.98 per troy ounce.
Gold is the most well-known safe haven asset in times of market volatility while silver has been the second option for investors when they can’t put their trust on the yellow metal. Safe haven assets usually do not have a high likelihood of lawsuit risk, thus, a lesser exposure to unavoidable investment perils for the market players.
However, the odds for the yellow and gray metal have been narrowed down by the previous strength of the US dollar. The Fed rate hike in 2016 pulled the US currency higher, exposing most of the precious metals and a basket of currencies in greater jeopardy in the first quarter of 2017. The three rate hikes forecasted by the central bank for this year will be a huge headwind for gold and silver as well.
Proving the inverse relationship between the currency market and gold was the conclusion of UK referendum. The vote to leave by the Britons caused a massive volatility in the financial market, but the safe haven assets took advantage of the situation.
For instance, gold climbed from 1254.67 to 1315 after June 23. The strength of the yellow metal continued as it traded at 1300.00 levels until the first week of October 2016. The likelihood of a Fed rate hike brushed off the gains of the metal in the third quarter.
In connection with this, the negotiation over the “total exit” of Britain is set to happen soon. British Prime Minister Theresa May indicated in her recent statement the optimism for the future of Britain after moving out from the Union “officially.”
“When I sit around the negotiating table in Europe this year, it will be with that in mind – the knowledge that I am there to get the right deal not just for, those who voted to leave, but for every single person in this country.”
Prior to this, May announced in the late 2016 that the formal negotiation and the implementation of Article 50 will begin by the end of March.
It is widely expected that investors might turn skeptic before the final settlement of the Brexit process. Once again, the financial market may tumble and the market confidence would fall on the safe haven assets. The post-Brexit sentiments started last year might just come back as the political and financial uncertainty emerges, in response; the safe assets may have support temporarily.
In light of the upcoming market events, the US currency will start the year with a bullish tone. Safe haven assets like gold and silver might fluctuate often with few instances of limited gains. Market players will pay attention to the US economy under the administration of Trump and the economic changes in Britain and on the countries under the European Union.
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