SINGAPORE: Societe Generale SA has come up with a way for investors to profit from the UK’s referendum on whether to remain in the European Union (EU) whatever the outcome: bet on a jump in gold volatility.
Swings in bullion should increase whether voters choose to remain in or sever ties with the world’s largest trading bloc, according to a note from the bank that lays out trading strategies. Investors could go long on a so-called gold-variance swap, which gains in value as volatility increases, Mark Keenan, head of commodities research for Asia, told Bloomberg Television.
Markets remain on edge ahead of the poll today amid warnings from governments, central bankers and investors including George Soros that a vote to leave the EU would roil currencies, equities and raw materials. In the event of a Brexit, SocGen expects gold prices to surge as copper and oil drop, while a vote for the status quo would probably hurt bullion. In either case, gold volatility would likely climb, according to the bank.
“We expect gold to jump 10% in the event of a Brexit,” Singapore-based Keenan said, forecasting a rally to US$1,400 an ounce.
“We expect volatility in gold to increase significantly, and this can be played out in terms of, from an investor’s perspective, through accessing instruments like variance swaps,” which increase in value as volatility increases, he said. In the run-up to the vote, bullion prices have weakened as bookmakers suggest the “remain” camp is in a strong position even as different polls have put each side ahead.
Spot gold traded at US$1,268.66 an ounce at 6am in London from US$1,268.12 on Tuesday, which capped a two-day loss. – Bloomberg