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Gold falls from two-year high as Brexit campaign suspended

NEW YORK/LONDON (Reuters) - Gold turned lower on Thursday, as sterling bounced higher and U.S. stock markets came well off their lows following the suspension of Britain’s campaign for next week’s referendum after a member of Parliament was shot dead.

British Member of Parliament Jo Cox, who was killed in the street in her constituency in northern England earlier in the day, had been a vocal supporter of Britain remaining within the EU. [MKTS/GLOB]

The turnaround in bullion prices, their first drop in seven sessions, came after rallying to the highest in nearly two years, buoyed by the U.S. Federal Reserve, which sounded a dovish note after its latest policy meeting on Wednesday.

In euro XAUEUR=R and sterling XAUGBP=R terms, the metal turned lower after reaching three-year highs.

Spot gold XAU= was down 0.4 percent at $1,285.76 an ounce by 2:40 p.m. EDT (1840 GMT), after rising to $1,315.55 an ounce, the highest since August 2014.

Spot prices have bounced 6 percent this month, after the approaching June 23 referendum - when Britons will vote on whether or not to leave the European Union, dubbed “Brexit” - dented appetite for assets viewed as higher risk, sending investors scurrying for bonds and gold.

After the attack, campaigning for next week’s referendum was suspended.

U.S. gold futures GCv1 for August delivery settled up 0.8 percent at $1,298.40 an ounce.

“A rebound in the euro and sterling, and a mirrored decline in the dollar, set gold up for a retracement,” said James Steel, chief metals analyst for HSBC Securities in New York.

“Recovery in equities may also imply some dimming in risk-off related purchases of gold.”

Yields on most U.S. Treasury yields rose to session highs after British campaigning for the Brexit vote was suspended following MP Cox’s death.

Expectations that the U.S. central bank would press ahead with interest rate increases over the summer faded earlier this month after the release of weak U.S. payrolls data for May.

“Brexit worries then gave us the next boost and yesterday the FOMC provided enough dovish ammunition for it to make a new high,” said Saxo Bank’s head of commodity research, Ole Hansen.

On Wednesday, holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Shares GLD, rose to the highest since October 2013. [GOL/ETF]

Silver XAG= fell 0.4 percent to $17.43 an ounce, platinum XPT= lost 0.1 percent to $969.67 and palladium XPD= was up 0.2 percent at $533.11.

Additional reporting by Vijaykumar Vedala in Bengaluru; editing by David Goodman