Only Extreme Breakdown In Brexit Negotiations Will Boost Gold Prices - Analysts
(Kitco News) - Brexit negotiations officially kick off Monday and there would have to be an extreme breakdown in talks to push gold prices higher, according to some analysts.
The negotiations commence as gold prices traded at a four-week low, with August gold futures last at $1,249.90 an ounce, down 0.52% on the day. Gold is seeing little safe-haven demand as equity markets push to record highs. The S&P 500 is up 0.63% on the day, at 2448 points and the Dow Jones Industrial Average was up 0.49% on the day at 21491 points
Analysts at Commerzbank noted that there is still a wide gap between the European and British positions. The U.K. government’s stance on negotiations was fairly firm with Prime Minster Theresa May saying “no deal is better than a bad deal.” However, according to some pundits, that position is expected to soften as the Conservative Party lost its majority status following the election at the start of the month.
According to reports, the initial negotiations are expected to be around the cost that U.K. would have to pay for leaving the European Union. When that topic is resolved, then the two sides are expected to tackle the issue of trade deals and other complicated issues within the next two years.
Lukman Otunuga, currency researcher at FXTM, said in an email response to Kitco News that it would take both sides to walk away from the table for gold to regain its safe-haven bid to push prices back to $1,260 an ounce.
“From a technical standpoint, traders will be paying attention to how prices react to the $1,260 resistance and $1,240 support,” he said.
Jasper Lawler, senior analyst at London Capital Group, agreed that it would take a “worst-case” scenario of a complete breakdown in talks to reverse gold’s new downtrend. He added that that is unlikely to happen.
“I get the feeling that Brexit is now specifically a U.K. Fears that a Brexit would spark a breakup of the Eurozone are starting to fade.” he said in an interview with Kitco News. “Overall the Brexit talks are not going to be enough for gold to rally.”
Lawler added that as a result of the recent election, the government is softening its stance on the negotiations, which means there is small chance officials will walk away from the table, at least this early in the talks.
The two sides have until March 29, 2019 to strike a deal -- that is when Britain officially locked in to leave the European Union.
Lawler noted that gold’s biggest hurdle is currently the equity markets as both the S&P 500 and the Dow Jones Industrial Average trade at record highs.
“If equities continue to go higher, gold could end up breaking below its current range at $1,200,” he said.