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Symbolbild Illustration Wechselkurs Euro britisches Pfund
Image: Reuters/P. Noble

Pound sags while gold shines

July 6, 2016

The British pound has tumbled to a new 31-year low as risk-averse investors flee financial market uncertainty sparked by the Brexit vote. They have turned to the Japanese yen and gold as safe-haven assets.


Amid mounting Brexit woes, global investors have shunned Britain's currency, driving the pound in European trading on Wednesday briefly below $1.28 (1,15 euros) - a new 31-year low - before the currency slightly recovered.

In Asian trading earlier in the day, the pound even fell as low as 1.2798 against the US dollar - its lowest level since June 1985 - and cutting about 13 percent off the value of the currency since Britons voted to leave the EU in a referendum on June 23.

Concern has grown in the past two days about financial stress in global markets as a result of weakening growth in the wake of the referendum. Adding to the woes was a move by the Bank of England on Tuesday to lower banks' capital requirements in support of post-Brexit lending, which analysts view as a prelude to further monetary easing, likely to drive the pound even lower.

In a further sign of market uncertainty, three of Britain's biggest property funds suspended trading earlier this week, following increasing redemptions by investors, who expect falling UK real estate prices.

"Just when you thought it was 'safe to go back in the water,' the pound got pounded as speculation around Brexit forms into something more concrete," said Stephen Innes, senior trader at OANDA Asia Pacific.

Some analysts, including those at Moneycorp in London, believe the worst may not be over for the British currency. "Even though investors should by now have priced into sterling slower growth, lower rates, renewed quantitative easing and prolonged political discord, that does not mean they cannot mark it down further," Moneycorp said in a note.

Flight to safe havens

By contrast, the Japanese yen, like the Swiss franc, attracted a fresh bout of flight-to-safety buying, causing the dollar to fall towards 100 yen, striking 100.40. And the yield on Japanese 20-year government bonds dipped below zero for the first time, while other maturities also fell to new lows.

The drop underscored that investors are willing to sacrifice earnings and even accept small losses to keep their money in rock-solid government debt. In Europe, the yield on 10-year German government bonds pushed below minus 0.20 percent to strike a record low of minus 0.205 percent.

Unsurprising for a time of heightened uncertainty, the price of gold on Wednesday reached peaks last seen more than two years ago. Gold rose to $1,375.45 per ounce in mid-session trading, its highest level since March 17, 2014.

"Gold is once again to the fore," said David Govett, Head of Precious Metals at Marex Spectron. "As our glorious leaders (in the UK) continue to muck around and bicker with each other, sterling is sliding ever lower. This is impacting on the euro and various other markets and generally contributing to an atmosphere of worry and uncertainty," he told the news agency AFP.

A breach of the key $1,400 price level for gold would become a distinct possibility, Govett added, if the UK "continues to talk itself down and drags others into the quagmire."

Fresh money flowing into the gold market came mostly from equity markets, which were falling again Wednesday, but also from bond markets. Silver too boasted a two-year high, reaching $21.14 per ounce, a level last seen on July 18, 2014.

uhe/jtm (AFP, Reuters, dpa)

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