NEW YORK – The turbulence sweeping global markets has reignited investors’ passion for gold.

Global central bankers have sounded the alarm that a British exit from the European Union could be disruptive to the global economy. Anxiety about the June 23 vote contributed to more than $1-trillion of value being wiped from global equities last week as bullion futures reached the highest in almost two years. Hedge funds are holding the second-biggest bet ever that the metal will rally further, falling just short of a record reached in 2011.

Gold’s return comes after prices fell last month as investor appetite for the metal faded on expectations the Federal Reserve was getting ready to raise interest rates again. Fed Chair Janet Yellen said concern over a so-called Brexit played a part in policy maker’s decision to hold off from raising rates last week. Precious metals benefited as investors sought a haven and a store of value.

“There’s more upside risk for gold than there is downside,” Josh Crumb, the chief strategy officer who helps oversee $1.7-billion at Toronto-based GoldMoney, said in an interview in New York. “For gold to fall, they would have to raise interest rates more than the market expects, and I think that’s a very unlikely scenario.”
Net-Long Holdings

Money managers boosted their net-long position in gold futures and options by 29% to 240 862 contracts in the week ended June 14, according to US Commodity Futures Trading Commission data released three days later. The all-time high was 253 653 reached in August 2011 – just a month before gold futures reached a record $1 923.70 an ounce.

In New York, futures advanced 1.5% last week to $1 294.80 on the Comex and touched $1 318.90 on Thursday, the highest since August 2014. Prices climbed the past three weeks, the longest rally since February. They lost 0.6% on Monday.

Traders put the odds of a US rate increase this year at 38% on Friday, down from 65% a month earlier. If the Brexit campaign succeeds, gold prices could reach $1,350 within a week of the vote, a Bloomberg survey of 22 traders and analysts showed last week. A Survation telephone poll of 1 001 adults on Friday and Saturday for the Mail on Sunday showed "Remain" won 45% support, while “Leave” was endorsed by 42%.

Even if Britons vote to stay in the EU, investors are still contending with negative interest rates, boosting bullion’s appeal since it only offers returns through price gains. About $8-trillion of debt worldwide carries negative yields, meaning those who buy the debt and hold them to maturity stand to lose money. Gold bulls enjoyed a 12-year rally that lasted through 2012 amid record global stimulus and rising debt levels. Prices dropped over the next three years as the US labor market rebounded.

Holdings in exchange-traded products backed by the metal are at the highest in more than two years. The SPDR Gold Shares alone attracted $10.3-billion in new money this year, the most of more than 6 000 ETPs tracked by Bloomberg. Open interest, a tally of outstanding contracts in Comex futures, rose to the highest in almost a month last week.

As gold moves closer to $1 400, mines that were shut during the price rout may be reopened, boosting supply and ending the rally, said John LaForge, the Sarasota, Florida-based head of real assets at Wells Fargo Investment Institute, which oversees $1.6-trillion. Still, success for the Brexit campaign could push prices to $1 440, or 11% higher than Friday’s close, he said.

“Over the longer term, I’m still not a fan of gold,” LaForge said. “If you’re thinking just 2016, there’s still a lot of fear out there.”