How high can the gold prices rise? Only Brexit voters can give an idea

NEW DELHI: The biggest geopolitical event of the year, Brexit, has sent equity markets tumbling globally.

But amid all that chaos, gold has emerged the preferred bet for investors seeking to hedge their risk in a seemingly volatile world.

Gold prices hit their two-year highs in both domestic and international markets as the precious metal benefitted from the risk-off trade globally.

“Risk-off is on and that is why we are witnessing a surge in gold prices both in dollar as well as rupee terms. This will continue till June 23,” Gaurang Shah, VP, Geojit BNP Paribas, told ETMarkets.com.

Gold prices have surged 5 per cent so far this month and 24 per cent for the year, clawing their way into a bull market.

“Gold always reacts positively to geo-political challenges, Brexit being one of them. The current price surge started with poor employment numbers in the US and this along with the forthcoming referendum pertaining to Brexit has kicked in the safe haven attribute of gold as an asset class,” said Keyur Shah, CEO, Precious Metals Division, Muthoot.

A YES to Brexit
Should Britain cast a Yes vote to Brexit, it will make gold prices rally to as high as $1,400, suggests Navneet Damani, Associate Vice-President, Commodity Research, Motilal Oswal Commodity.

“In dollar terms, the gold rally could extend towards $1,350-1,400 if we see a big risk-off trade post Brexit. In the domestic market, price levels should rise to Rs 31,800-32,500,” he said.

“If the vote is in favour of Britain’s exit from the euro zone, then both equity and currency markets are heading for volatile times and this will trigger a flight to safety in an asset class like gold,” warned Gaurang Shah.

That is what makes gold “the best placed asset in the current environment to protect investors from big potential swings in global currency as well as equity markets,” said Navneet Damani.

A NO to Brexit
Should the British case a no vote, it will cool off the current rally, said Gaurang Shah.

“If the vote is to stay in the euro zone, then one can expect a cool-off in gold prices locally as well as globally,” he said.

Navneet Damani suggests a “no” vote might trigger “a downward reaction in prices, pushing domestic prices back to Rs 30,600-30,400 levels.”

How to invest?
“Minus the Brexit event, gold is going to be a safe haven attraction and liquidity will keep flowing into it,” Gaurang Shah said.

Keyur Shah feels the downturn in gold prices is over and the question is not if gold prices will rise, but by how much.

“The general consensus among analysts is that the bottom for gold prices is over... it’s only a question of how much and how soon the prices will go up,” he said.

In such a scenario, investors looking to hedge their positions against volatility in risky assets “can have a small portion of the overall investment in gold or gold- related products such as gold ETF, depending on individual risk appetite,” Gaurang Shah said.

Gold ETFs have been the best performing ETF in 2016 and in the past 12 months, generating 13 per cent and 22 per cent returns, respectively.