Worries about contagion from a UK vote to leave the European Union (‘Brexit’) have undermined the prices of riskier assets this past week, including oil and other industrial commodities, while boosting those of safe havens such as gold. In our view, many of these worries are exaggerated. Even if the vote is to leave, the UK would remain a member of the EU for several years, allowing time for negotiations to clear up at least some of the uncertainties. Officials currently talking up the risks of Brexit in attempt to influence the results are also likely to change their tune to reassure businesses and investors instead. Nonetheless, a majority for Brexit could see oil prices fall to our existing end-2016 targets of $45 (for Brent and WTI) much sooner, with gold jumping to our end-2017 forecast of $1,400 almost straightaway.
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