Gold whipsawed as early Brexit results hurt outlook for 'Remain'

[SINGAPORE] Gold swung sharply between gains and losses as investors sought to anticipate the outcome of Britain's vote on membership of the European Union, with early speculation that 'Remain' would prevail followed by a rise in doubt about that result.

With counting under way, bullion for immediate delivery first lost as much as 0.5 per cent to US$1,250.89 an ounce, then surged 1.1 per cent to US$1,271.13, according to Bloomberg generic pricing. It traded up 0.8 per cent at US$1,266.58 at 7:32 am in Singapore on Friday after a four-day losing run.

Prices have weakened from near a two-year high last week as expectations that the referendum would endorse the status quo have strengthened, hurting demand for haven assets.

While bookmaker Paddy Power Betfair Plc indicated a 92 per cent probability of a vote to stay, the early results from cities in the northeast of England showed greater support for leaving the bloc than academics had forecast.

Until the overall result is finally out "it could be a volatile day for gold, particularly if it looks like it will be a close outcome," said Shane Oliver, the Sydney-based head of investment strategy at AMP Capital Investors Ltd, which oversees about US$116 billion.

"Gold will likely see more downside if 'Remain' does win, at least back to support at around US$1,200 or maybe even US$1,176."

The pro-EU camp won 51 per cent of the vote in Newcastle, smaller than the forecast 12 percentage-point lead. In Sunderland, 61 per cent voted in favor of an exit. After those results were announced, gold gained with the yen as the pound sank.

Should Britain stay in the EU, gold investors may shift attention back toward the outlook for US interest rates. After boosting borrowing costs in December for the first time since 2006, bets tracked by Bloomberg show traders put the chances of further hike from the Federal Reserve this year at 50 per cent.

In a speech Thursday, Dallas Federal Reserve President Robert Kaplan urged patience in raising rates, saying accommodation should only be removed "based on a realistic assessment of economic conditions.

The comments come at a time when pessimism about long-run growth prospects is gripping the Fed.

While bullion prices have declined ahead of Britain's landmark referendum, holdings in exchange-traded funds have kept expanding. The assets were little changed at 1,904.3 metric tons on Wednesday after rising for 16 days to the highest level since October 2013, according to data compiled by Bloomberg.

BLOOMBERG