Buy gold for 3 reasons: Brexit, Fed, and Trump vs. Clinton

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After topping the $1,300 level last week, gold looked likely to ride that momentum higher, fueled by the tailwind of the disastrous U.S. jobs report issued May 6.

But that hasn’t happened so far this week. Some unexpected strength in the U.S. dollar, feeding on weakness in the Japanese yen, has sent gold back to the $1,260 area. Surging stock prices Tuesday also dimmed bullion’s appeal.

Still, the metal is up about 19% on the year, and many analysts remain bullish. Trading data as of May 3 showed that hedge funds have raised their net-long positions to the highest levels since 2011, while ETF inflows have risen by 50 metric tons since April 25 for the biggest 10-day increase and longest run in two months, Bloomberg reported.

Golds drivers largely intact: The drivers that have lifted gold prices still remain largely intact, including the continuous wavering of the Fed in terms of the rate increases and the softening of the dollar, which introduced a layer of uncertainty in investors mindsets that tends to support the precious metal, Nitesh Shah of ETF Securities told Reuters.

Three catalysts lie ahead this summer that make gold a must-own asset. Warning of a vortex of negative headlines, Bank of America Merrill Lynch strategist Savita Subramanian thinks the S&P 500 could fall back to February lows this June. Whats behind her prediction?

  1. Great Britain’s June 23 Brexit referendum, in which voters will decide whether the nation should leave the European Union;
  2. the Federal Reserves next big meeting in June, in which it could raise interest rates for the first time since December; and
  3. the countdown to a likely bitter U.S. presidential election pitting presumptive Republican nominee Donald Trump versus his Democratic counterpart, Hillary Clinton.

Fed tightening into a slowdown: Although the odds of a Brexit approval are unlikely, the jury is still out, and the fallout could jolt Great Britain and the EU across a range of areas, including confidence, investment, public finance, and GDP growth. Investors are increasingly likely to turn to gold as a safe haven ahead of the vote.

Meanwhile, although last weeks jobs report as of now doesn’t favor any Fed rate hike, what the central bank might do remains a great unknown. The stock market tumbled at the start of the year in the wake of Decembers rate increase, and this past quarter has seen a deepening earning recession. If it raises rates in June, the Fed is tightening into a profits recession. This typically does not happen, Subramanian noted. Typically tightening cycles start with profits growth really healthy and right now we’ve got negative year-over-year growth.

And finally, the markets are now becoming increasingly subject to the influence of presidential politicking. Were heading closer and closer to the most polarized election that we’ve seen in our careers, so there’s a lot to worry about, said Subramanian. One of the things we’ve noticed is that about six months ahead of November in an election year, the market typically peaks and trends downward.

Add to this uncertain picture the candidacy of Trump, who is seen in some quarters as a risky wild card in terms of his potential policies, and the likelihood of volatility is running very high.

With gold currently dipping from its 15-month high set Friday and entering its traditional summer lull period, that’s all the more reason to invest in the metal at relatively bargain prices.