QUICK OPINION
Those looking around for reasons to explain gold’s waterfall drop this morning might want to consider the plight of the British pound. Here is an overlay chart showing the association between the two:
Note that sterling has dropped below the $1.30 mark – apparently a key level. The drop in gold first manifested itself (bubbled to the surface?) with the London PM fix which came in at $1283.30, $25.85 under the AM fix. Gold’s drop could be part of a part of scramble for liquidity among big banks hammered by the drop in the pound.
The UK finds itself in the middle of a financial crisis in the wake of the Brexit referendum. Prime Minister Theresa May over the past weekend began to lay out the course and some of the details including setting a firm date for legally triggering the exit process as March, 2017. The reality hitting home apparently is causing some serious anxiety in London trading circles.
The drop in gold might be similar to the one precipitated in the United States when cratering assets and margin calls forced selling in the gold market for liquidity purposes. We might be experiencing the same thing today – only this time originating in London instead of New York. MK
