The upcoming week is laden with risks and opportunities. Equities markets have become persona non grata for traders and investors across the board. On Friday, 24 June 2016 European indices were pummelled with the Ibex 35 down 12.35%, the CAC 40 index 8.04% lower, the German DAX down 6.82%, the FTSE 100 down 3.15% and the Euro Stoxx 50 PR down 8.62%. Wall Street was not immune to the fallout, as the Dow Jones plunged 3.39%, the S&P 500 index dropped 3.59% and the NASDAQ composite index shed 4.12%. Equities saw trillions of dollars wiped out in a Black Friday of trading.
However, as is always the case when equities markets are under pressure gold gained favour. The precious metal which was increasingly looking like it would remain under $1,300 an ounce spiked to $1315 per ounce. The performance of gold has been remarkable during this highly volatile trading period. Recall that in the lead up to the Brexit referendum, momentum was swinging wildly between remain campaigners and Brexiteers. Ultimately the vote went in favour of a Brexit by a margin of 52% to 48%. The high spot price for gold is $1,355.04 and the low spot price for gold is $1,246.43. For June 24, gold closed in the Comex at $1,320 per ounce, up 4.66% or $58.80.
Of course, financial headlines around the world are overwhelmingly running Brexit fallout stories. In Britain you have shadow cabinet members resigning, complete upheaval in the British political system, concerns about who will be replacing Prime Minister David Cameron in October, issues of immigration and trade and more. Recently we have seen announcements by major banks beginning to move some of their operations out of the United Kingdom. The UK will likely have to invoke Article 50 of the Lisbon Treaty to begin the divorce proceedings from the EU. This painful, complicated and costly exercise will bring about the biggest change to the political, social and economic structure of the European Union in its entire history.
It is against this turbulent backdrop that we explore the many profitable trading opportunities presented by analysts for the upcoming week.
1 – Stocks: Goldcorp Inc is Bullish
Goldcorp Inc (GG) is currently trading 4.43% higher at $18.38 per share, up $0.78. The stock has a 52-week trading range of $9.46 on the low end and $20.24 on the high end. At its current share price, the company has a market capitalisation of $15.29 billion and although the earnings per share is $-4.81, the stock has shown a remarkable comeback since the lows endured at the beginning of the year.In terms of overall analyst opinion, Goldcorp Inc (GG) is rated at 2.7 this week on a rating scale of 1.0 (Strong Buy) to 5.0 (Strong Sell). Once again, the reason why gold mining company stocks like this one fare well during times of political uncertainty is that the performance is linked to the gold price.
2 – Commodities: Analysts Go Long on Gold as Brexit Turmoil Wrecks Markets
On Friday, 24 June, the gold price blew through its $1,300 per ounce ceiling as markets absorbed the shock of the referendum result. The massive and unprecedented selloff in equities markets drove traders to gold bullion, government bonds and the Japanese yen. By 1:35 PM, the price of gold bullion had surged 4.6% as it touched $1,321.10 per ounce. This marked the precious metal’s biggest one-day gain in four months, and it was the highest closing price for gold in well over 1 ½ years. Naturally, the price of gold bullion rises with all of the uncertainties surrounding the future of Britain and the European Union. With a risk-off approach being adopted by traders across the board, gold is naturally the go-to safe-haven asset.
3 – Indices: The US Dollar Index Gains Ground
The US dollar index is currently at 95.54, up 2.49% or 2.33 points. The previous day’s close was 93.21. This index has a 52-week low of 91.92 and a 52-week high of 100.51. Although the US dollar index has rallied in recent times, it is clear from the above chart that the US dollar index has fallen from 97 to its current level of 95.54. The reason for the uncertainty with this index is directly attributable to the unknown outcomes of a Brexit. While many currency traders believe that the USD is a safe currency with the GBP and the EUR in flux, the truth of the matter is that the JPY is actually the most bullish of all.
As investors, analysts and speculators mull the future prospects of the global economy, one thing is clear – everything remains uncertain. This is especially true for the USD which has come under pressure domestically with weaker than anticipated economic data, the reluctance of the Fed to hike interest rates, poorer non-farm payrolls data being reported and the uncertainty laying ahead for the US presidential elections in November. For these reasons, there is no straight shot for the USD to rally at this time.
4 – Analysts Back the Japanese Yen as British Pound Tumbles
If we take a look at the performance of the USD/JPY currency pair, it is clear that the trend is negative for the greenback. The Japanese yen has gained so much ground lately that is fast moving towards 100 to 1 with the USD. This is evident from the above chart reflecting the performance of the currency pair. After the Brexit result was made clear, the JPY rallied. Recall that this currency is a safe-haven currency during times of geopolitical uncertainty, much the same as gold acts as a commodity.
The GBP/JPY has lost tremendous ground, and the Nikkei 225 index plunged as much as 7.92%. Recall that as the Japanese yen appreciates, the index plunges. In terms of one-on-one performance, the GBP plunged 14% against the JPY, marking its steepest one-day drop off in history. However, there are increasing calls among the political elite in Japan to intervene in the currency market to prevent the Japanese yen from appreciating too sharply against the USD, GBP, CHF, CAD, AUD and other global currencies.
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