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Record Gold Price in GBP - A Great Time to Sell and also To Buy?

Tuesday, August 6, 2019

Monday 5th August saw the gold price in GBP reach its highest ever level. Record levels were also achieved for gold priced in Chinese Yuan, Indian Rupees and the Canadian and Australian Dollars.

Exchange Rates Matter

When studying the gold price it is essential to look at the exchange rates between the local currency and USD. Gold is traded around the world in USD and the exchange rates between USD and local currencies therefore determine the local gold price.

With the Pound currently trading around $1.21 USD we are experiencing some of the lowest rates in recent times with some forecasters predicting parity between the Pound and US Dollar if a No Deal Brexit produces further pressure on our currency in the weeks and months ahead.

This would result in higher gold prices for us in GBP but any sign of flexibility from the EU in re-negotiating our Brexit arrangements could see a strengthening of the Pound against the Dollar and a dip in Gold prices.

Record Prices in GBP....But

Recent record Gold prices in GBP and other currencies may well be grabbing headlines amid claims of assets being moved to ‘safe haven’ options but the underlying global price in USD is nowhere near record levels. At the current level of around $1465 per ounce the price is well over $400 per ounce below the record levels of 2011.

Looking Ahead

Financial authorities in the US and in the EU are looking to lower interest rates and the EU are apparently actively considering another money printing round of Quantitative Easing to head off growing fears of recession. Both of these courses of action have been associated with increases in the Gold price in the recent past and may well offer supporting arguments for future rises.

The increasing levels of Global unrest and uncertainty including the developing situation relating to US/Chinese trade add the likelihood of increased levels of ‘safe haven’ demand for Gold and the resulting price rise.

Many hedge fund managers and investment gurus are once again extolling the virtues of investing in Gold and such sentiment usually helps to stoke the Gold price. Whilst reaching record price levels in GBP may discourage some buyers, the fact remains that in Global terms we are $400 plus per ounce below all-time record prices.

If you are looking to invest in gold, there are many options available, depending on your budget, catering for beginner and seasoned investors alike. Products such as our Best Value 1oz Gold Bar are great for first time investors but we also have a wide range of Larger Gold Bars available for bigger portfolios.

If you are looking to take advantage of the record breaking GBP Gold Price and sell some or all of your portfolio, then you need to visit our Selling Page to help you work out what your gold is worth.

Could Gold Gain from Fresh UK Fiscal Stimulus?

Tuesday, July 23, 2019

Whichever way the Conservative Party leadership race has turned out this summer, Conservative Party members will have chosen a man to become Prime Minister; a man who is likely to advocate for Brexit by any means, along with a platform of higher public spending and tax cuts - a form of Brexit public spending spree if you like. With such turmoil on the political horizon, could it be time to consider buying gold, as a hedge against potential market turbulence?

The Bank of England, whose prime responsibilities include maintaining price stability and steady employment, could potentially be forced to slash interest rates and return to a policy of quantitative easing, known by some as another way of printing money, especially if a no-deal Brexit comes to pass.

These factors, a public spending spree, combined with the loosest monetary policy seen before, could combine to make 2019 a bumper year to buy gold.

Golden promises are made

After years of being reminded that the UK government has lived beyond its means for too long and that there was no “magic money tree”, both Boris Johnson and Jeremy Hunt appear to have found a magic money forest.

Mr Johnson pledged to lower tax burdens on higher earners, raising the higher-rate income tax threshold from £50,000 to £80,000. The Institute for Fiscal Studies believes this move would incur costs of £9 billion alone.

Both contenders for the role of Prime Minister have abandoned the near-decade-long Conservative Government plan of cutting the budget deficit, in favour of a public spending increase not seen since 2008. The last time a UK government oversaw such an expansion in borrowing, the government was responding to a global recession.

The global financial crash of 2008 was the drive gold needed, for a turbo-charged rally. Gold prices started at levels as low as £330 per troy ounce, in the summer of 2007, as the banking crisis started.

By the time the panic of the post-financial crash era had receded, gold prices were substantially higher. By the summer of 2011, the price of gold peaked at over £1,150 per troy ounce. That’s a four-year bull run, with a respectable return for gold bullion investors, during a time of market crashes and currency debasement.

Less fiscal wriggle room

Both Boris Johnson and Jeremy Hunt made their spending and tax pledges, based on the assumption that the Treasury could afford a rise in borrowing, post-Brexit. Outgoing Chancellor of the Exchequer Philip Hammond had actually stated that there was indeed some fiscal headroom, equivalent to £26 billion or so, kept aside to act as a cushion, in the event of a slowdown.

On top of Boris Johnson’s budgetary plans, Jeremy Hunt announced his intention to hike defence spending and cut corporation taxes to boost the economy. The former policy would cost as much as £13 billion annually, while the latter could cost as much as £15 billion more per year by 2024-25. Mr Hunt’s pledge to support agriculture, fisheries and SMEs was also estimated to cost as much as £6 billion.

In the face of these budget-busting pledges, Mr Hammond was keen to stress the fact that his post-Brexit war chest risked being completely burnt away, in the event of a disorderly no-deal Brexit. This is because he estimated that this outcome would cost a future Government £90 billion in a matter of months, far outnumbering the money he has put aside.

Putting this into context, a budget deficit rising by £90 billion at the very least risks taking the UK back to levels of borrowing not seen since the height of the financial crash in 2008, which saw the budget deficit peak at over £150 billion. Weak growth and tumbling asset prices allowed gold to rally by 250 per cent during its four-year bull run during the same period. There’s no reason why gold bullion shouldn’t make great gains if the UK finds itself grappling with a new downturn, following a disorderly Brexit.

Money printing back on the cards?

As well as potentially being on the brink of higher government borrowing, the UK is likely to experience fresh monetary stimulus from the Bank of England (BoE). In reaction to the global recession in 2008, the BoE slashed interest rates close to zero and created fresh cash through quantitative easing, seen by some as a form of money printing.

The BoE has demonstrated a pattern of behaviour by following this method, not only following the 2008 banking crisis but in response to the EU referendum back in June 2016. When economic surveys suggested a slowdown, as they are currently doing in 2019 as well, the BoE slashed rates to a new all-time low and embarked on a fresh round of money printing. In the face of a new economic slowdown, it is highly likely the BoE might follow the same prescription. Gold could be the main beneficiary, as it carries no interest, and its performance is based solely on its overall price performance, as based on supply and demand in the markets.

If you want to buy gold, a low-interest-rate environment could prove to be the drive to help you enjoy a significant return on your investment, especially if other assets experience corrections. This is because people often buy gold as a store of value, in times of economic strife. The last time there was fear of an economic slowdown in the UK back in 2016, gold prices rallied by 50 per cent in just 12 months.

Buy gold online

The potential for another gold price bull run is all the more reason for you to not only consider buying gold outright but also buying gold through an online outlet you can trust. The Gold Bullion Company has been ensuring that gold investors get high-quality gold bullion and other gold products at a respectable price.

If you think buying gold is something to consider, check out our guide, to help you decide if it’s time to invest your money in gold bullion today.

As Central Banks Shun the Dollar for Gold, UK Fails to Seize a Golden Opportunity

Wednesday, June 26, 2019

It’s no secret that Britain and the US have a convoluted relationship with gold. In the 1970s, the US abandoned the Bretton Woods system in order to float the Dollar - double-digit inflation ensued. The UK equally made a blunder in 1999, selling off a significant portion of its gold reserves (remember “Brown’s Bottom”?).

You might think that the end is nigh for gold, given the Anglo-American reluctance to buy gold. This is too simplistic a reading to make. As the World Gold Council can attest, China and Russia’s central banks have gone to great lengths to secure a slice of gold while they still can.

To finance this, both countries have reduced exposure to the Dollar, by selling up their holdings in US treasuries. In one fell swoop, they have diversified and managed to strengthen their position, opting for tangible assets over assets from a sovereign nation reliant on fiat currency.

Yet change may be afoot in the US, at long last. Judy Shelton, a long-time advocate for a return to the gold standard, is being eyed up by the Trump administration for a possible role in the Federal Reserve.

A paradigm shift?

As noted, Russia and China’s central banks have been greatly increasing gold holdings. China now boasts a haul of as much as 1,885 tonnes of gold, while Russia can claim to hold as much as 2,168 tonnes. To put this into perspective, Russia has managed to double its gold holdings in just five years flat.

In marked contrast, Britain’s gold reserves have remained static, at just over 310 tonnes, or 8 per cent of total foreign exchange reserves. The 1999 sell-off is largely responsible for such a small figure here. Britain appears fairly ambivalent to the need to acquire gold, but China and Russia appear to be leading this new trend of increasing demand for gold.

Do the Chinese and the Russians know something we don’t? Perhaps they see this current period as a golden opportunity to shift the axis of the global financial system. The era of US/UK financial hegemony might be almost over.

The US and gold - love it or hate it

The American relationship with gold is seemingly a love/hate one. Under Bretton Woods, the Dollar was fixed to gold, at a rate of $35 per troy ounce. Since the 1970s, the US has allowed the Dollar to become fiat currency, floating freely, while the Federal Reserve, just like the Bank of England, has printed fresh currency.

This money printing accelerated in the aftermath of the global financial crisis in 2008. This expansion in the supply of currency has been greatly supportive of gold. Now, the White House seems like it is considering a long-time gold standard advocate, Judy Shelton, to be considered for a job at the Federal Reserve.

Ms Shelton has made a name for herself, likening the Federal Reserve to Gosplan, a USSR government division that managed the bloc’s economic development during the Cold War. Ms Shelton being considered for such a job is an indication that there could be something of a change in economic thinking taking place, towards a more gold-friendly orthodoxy.

Britain facing summer of stress

A return to a more gold-oriented financial system would have profound implications for Britain, with its small gold reserves and its host of political and economic problems. As it was during the financial crisis, gold has shown great potential for strong performance during Britain’s long-running Brexit saga.

Brexit is likely to remain unsolved until late 2019 at the earliest, putting pressure on Sterling and other British-based assets. Gold could benefit greatly from this uncertainty, serving as a tangible asset that has retained much value over the years.

The gold price remains elevated in recent times, close to its 2011 peak in Pound Sterling terms, at £1,100 per troy ounce as of late June 2019. Ironically, when Britain sold its gold in 1999, the market was just bottoming out. Since then, gold has appreciated multiple times, losing the country a significant sum of money in potential reserves.

Even now, as the price of gold remains close to an all-time high, Britain’s gold reserves remain static, suggesting they have much to learn from their fellow central banks in Russia and China.

Safe haven for the future

A new gold standard might be a long way off if it is even viable. Even so, the significant sums that central banks around the world have acquired in recent years reflect the constant truth about gold: that it remains a tangible means with which to store wealth, amid turbulence and crisis.

With the potential for a deepening trade war that could have great repercussions here in Britain, coupled with the continuing Brexit dilemma, which doesn’t seem like it’s near its completion anytime soon, gold prices have a great deal of support at present.

To demonstrate the potential for gold to really shine this summer, one need only look at the performance of gold priced in Pound Sterling back in 2015-16. Over a year-long period, covering the run-up to the EU referendum and its volatile aftermath, gold prices jumped 50 per cent.

Like a coiled spring, gold has the potential for great returns to the upside at short notice. The next big leap in prices could potentially see gold hit all-time highs in Pound Sterling terms if it is anywhere near as large as the previous rally in 2016.

Past returns are never a perfect predictor of future performance, but if the simple act of voting to leave the EU contributed to such a return, the potential for a rally in the event of a chaotic resolution to Brexit could make the summer of 2019 one of the most consequential summers to buy gold in the history of the British gold market.