Article / 22 June 2016 at 8:30 GMT

From the Floor: 'Bremain' tilt sends gold sliding

Your Next Trade
  • Gold falls $30/oz as Brexit decision edges towards a 'Bremain' outcome
  • Most of the Brexit risk "priced out of gold" — Hansen
  • Long position in gold unwinds as 'smart money' exits — Hansen
  • GBPUSD, EURGBP in clear mean-reversion zones — Hardy
  • Markets "ignore Yellen testimony" as Fed credibility sinks to new low — Hardy
  • Bonds retreat as markets move in synch with Brexit polls — Boye


By Martin O'Rourke

Taking a dive

Gold fell some $30/oz overnight after the rally that had helped propel it above $1,300/oz last week hit a formidable  'Bremain' hurdle as the countdown to the UK referendum on EU membership enters its final 24 hours.

"There have been a couple of big selloff days and that has seen gold suffer a big loss", says Saxo Bank head of commodities strategy Ole Hansen. "Most of the Brexit risk has now been priced out of gold".

Hansen pinpoints $1,257/oz and $1,244/oz as pivotal supports for gold in and around the vote. Gold was at $1,264.71 at 0655 GMT.

"Brexit is leading to a tremendous repricing of gold", says Edmund Liu from Saxo Bank's Singapore hub. "Gold will definitely take centre stage over the next couple of days and if 'Bremain' happens, we will see a temporary selloff".

"The Bremain camp is still ahead but it might be losing some momentum", he adds.

A primary driver of the plunge in the gold price has been the exit of 'smart money' from long positions established when Brexit fears hit a peak last week (before the dreadful murder of remain-campaigner Jo Cox), says Hansen. "ETF demand is still accelerating into the drop", notes Hansen, "with some 8 tonnes added during the $30/oz drop yesterday".

"Risk reward is skewed to the upside", says Saxo's commodities chief.

Gold rally well and truly punctured as Bremain camp sustains momentum

Source: Bloomberg

Gold of course is not the only safe-haven asset suffering as a consequence of a return of some risk-on appetite with bunds also slipping and both the dollar and the yen faltering.

"Bonds are moving in synch with the Brexit polls", says Michael Boye from the fixed income desk in Copenhagen. "There is very limited upside in case of a 'Bremain' vote". 

Mean reversion

The subtle but definite tilt towards a 'Bremain' vote indicated by the polls (we do urge caution in putting too much store by the pollsters after last year's UK election) has also left sterling somewhat caught between a rock and a hard place as the British make up their minds.

There are mean reversion cases for both GBPUSD and EURGBP after "a clear pricing in of Brexit", says Saxo Bank's head of forex strategy John J Hardy. "If we assume that we are going to neutralise the Brexit then EURGBP could go to 0.73 and GBPUSD could go to 1.52-53 or could even extend a bit higher to the upside".

"The safer trade is to focus on EURUSD or EURJPY and it is hard to trade anything at the moment that is not correlated with the Brexit", says Hardy.

Mean reversion in both EURGBP and GBPUSD evident in the last few days

Source: SaxoTraderGO

Federal Reserve chair Janet Yellen gave her two pennies worth on the Brexit when giving testimony to the senate but, says Hardy, markets largely ignored what she had to say.

"The Fed is a bit rudderless at the moment and markets don't believe in its credibility", says Saxo's forex chief. "Quote of the week from Yellen has to be that 'we are not relying on forward guidance'".

With the Fed effectively accepting it is completely driven by data points, that has also left the dollar somewhat stranded and the twin whammy of a 'Bremain' vote and Fed dovishness is likely to keep the dollar weak for now, he adds.

And finally....

The agricultural rally looks like it could be unwinding after corn fell 9% in the last two days which could see an end to a huge speculative long position in the sector over the last few weeks, says Hansen. Sugar is also potentially on the turn, he says.


It probably wouldn't be the worst assumption that the Canary
Wharf workforce will be backing a 'Bremain' result. Photo: iStock

Martin O'Rourke is managing editor at Saxo Bank

Editor’s note: From the Floor takes advantage of's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.

22 June
Martin O'Rourke Martin O'Rourke
Saxo Bank's very own Brexit poll is decidedly in favour of a 'Bremain' result tomorrow with 66% predicting a 'Stay' outcome but we can't help thinking that the vote is going to be much closer than this.


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail