It is not surprising that many people find scrap gold inside their homes. Sometimes you may inherit the belongings of an old relative, or you may have some old jewellery, which is broken or damaged. All of this constitutes scrap gold. But what is the best way to evaluate this fortune in your possession? More importantly, how will you sell it? Read on to find out.

A gold price calculator from Physical Gold

What you need is a gold price calculator. As one of the country’s most reputed precious metal dealers, Physical Gold offers you a fair value for your scrap gold. We are able to tell you the price we are willing to pay for your gold in advance. Before you use a calculator, it is important to find out the total weight of the items you wish to sell. All you need is a digital weighing scale, and you can get a fairly accurate idea of the amount of gold you’re selling. An online gold price calculator is extremely easy to use.

All you need to do is enter the weight of your gold in grams. You also need to know the fineness of the gold. Many people would already be aware of this, however, if you aren’t, you can simply enter the number of carats you believe it to be. That’s all you really need to do. You can then click on the button, and we will show you the price we are willing to pay. We will even explain how we arrived at that price.

How can I sell my scrap gold?

The best and easiest way is to call Physical Gold on (020) 7060 9992. A member of our team will then guide you on what to do with your gold. If you have already evaluated the gold you possess through the online calculator, we will pay you the price indicated, after checking the weight and purity. Within five working days, the money can be in your account.

If you wish to post your gold to us, you must first book in the sale and then use the Royal Mail Special Delivery to send it to us. It is also recommended that you insure your parcel. If you need more information about how to sell your scrap gold, you can get in touch with us online by visiting our website.

 

Image credit: PxHere

What is the gold price?

This is a generic question that many precious metal buyers ask. However, it is important to clarify certain key concepts when it comes to discussing the gold price today. Firstly, it is important to not confuse the concept of ‘value of gold items’ with today’s gold price. Investors are often confused when faced with this dilemma. A layperson would be led to believe that the value of a gold item, whatever it may be, can simply be calculated by weighing the gold and multiplying it by today’s gold spot price. However, this is not true.

The value of gold items

Well, it all depends on the gold item that you own. Is it a gold bar? If it is, then we need to check the purity of the gold by looking at the refiner stamp on the bar. The gold price today relates to pure gold, also known as 22-carat gold. If the refiner stamp on your gold bar states that it is 22 carat gold with a purity of 999.9, then today’s price for gold will apply. If, however, the item you own is a piece of jewellery, an artefact or something else, then the gold price today may not apply.

This is simply because of design and making charges for jewellery or other items cannot be recovered. It is also highly likely that the purity of the gold may have been diluted to harden it. This is usually done with the addition of base metals like copper or nickel so that the jewellery can be manufactured without breakages. The malleability of pure gold does not allow it to be fabricated into such items easily.

Today’s gold price

The price of gold today isn’t really a fixed-price. It is a dynamic price that changes every second, whenever the markets are open. The gold market is a global one, and today’s price keeps fluctuating if the gold markets are operational anywhere in the world. So, Asian markets operate at different times when compared to the New York London markets and the price of gold today keeps moving on. Apart from this, the gold markets do not operate during weekends and major international holidays like New Year’s Day.

Finding out the gold price today

Today’s gold price is stated in USD per Troy ounce. Most reputed dealers will have this price published on their websites. You can also find out the gold price today by searching on a search engine. The current gold price is known as the spot price. Currently as I write, the spot price of gold is $1843 per Troy ounce. The Troy ounce is a unit of measure used to weigh precious metals. It is slightly different from the regular ounce. A Troy ounce equals 31.10g, according to the metric system. The regular ounce equals 28.34 g. So, now we understand that today’s gold price is the price in US dollars for 31.10 g of gold.

Premiums over today’s gold price

When buying or selling, another key concept to be aware of is that investors cannot sell or buy exactly at the gold price today. When buying, a small premium needs to be paid over and above the gold price today. When selling, you lose this premium. The premium accounts for dealer margins, manufacturing and designing costs and other logistics.

Find out more about gold prices from Physical Gold

Our gold experts are best placed to advise you on the right price to buy or sell your gold. To benefit from this advice, please call (020) 7060 9992 or drop us a line via our website and we will be in touch with you.

 

Image credits: Wikimedia Commons and Pixabay

Having stood the test of time over the years, the yellow metal has turned into an asset class that investors frequently depend on during times of economic turmoil. Gold has historically been seen as a safe haven and an investment vehicle that generates steady returns.

While the appetite for gold has risen and fallen over the years, it is obvious that gold demand skyrockets during times of crisis. The world has seen much of this in the last couple of decades. The demand for gold feeds on the fear of investors and looking back to 2011, we can see that the spot price of gold reached its highest point in August of that year. The all-time high, which crossed $1900, was at the height of the global economic crisis at the time.

Economic fears and social collapse

Most researchers study the anatomy of an economic crisis by measuring the financial impact, supply and demand issues and political ramifications. However, one of the largest problems that follow a global crisis is social impact. Epidemic diseases create the fear of death, which in turn breaks down society. Standard economic measures taken by governments can only soften the blow to an extent. In reality, there would still be people who cannot pay their bills, housing foreclosures and a growing banking crisis.

Currently, we are in the middle of what could be the largest global pandemic the world has ever seen. At the time of writing this article, the US has approximately 6.1 million confirmed cases of COVID-19, with 186,000 deaths. Likewise, the UK has over 335,000 cases and more than 41,000 deaths. The numbers are staggering and continue to grow every day. Unemployment in the United States reached an all-time high of 14.70% in April 2020. Needless to say, these economic pressures have penetrated deep into the heart of American society, destroying any semblance of economic stability that was previously there.

 

The multiple impacts of COVID-19

Impact on the economy and other asset classes

One of the key barometers of Britain’s economy is its housing market. These figures show a drop in demand of around 40% at the end of March 2020, according to Zoopla, a well-known property-related website. The drop in demand isn’t linked to the availability of housing. Importantly, it is the outcome of a shrinking economy, where the lack of job security has resulted in an exodus of buyers. Many businesses have become bankrupt during the lockdown and this has also had a huge impact on commercial properties. Moreover, the post-pandemic era is likely to see a greater number of people moving to homeworking. Prime commercial property, for example in Central London, will lose its lustre due to reduced demand.

Other areas of the economy have also taken a significant hit. A report by the Financial Times indicated that automobile sales were down by 97% in May 2020 – the biggest drop in three decades. The United Nations has published a report that estimates the damage to the global economy to be US$1 trillion. In fact, the UN has requested countries all over the world to spend now, in order to avoid a long period of economic uncertainty. The economic think tank of the UN has advised that a lot more needs to be done, rather than reducing interest rates and cutting taxes. In March 2020, the US government released a stimulus package designed to help businesses across the country. The package included payroll tax cuts and certain emergency measures to reduce job losses across businesses.

The UK government was pro-active in the creation of an employee welfare scheme called the ‘furlough scheme’. This scheme was designed to help UK employers retain employees during crisis periods when employees could lose their jobs, the company ‘furloughs’ the worker, i.e. puts them on the scheme. The government pays 80% of the wages, up to £2,500 a month, while he/she is laid off. Two out of three British employers have used the scheme in the past. However, this scheme is likely to be pulled to reduce government spending. Many UK workers are likely to face tough times once the scheme is shut down.

Impact on the European economy

Closer to home, the German economy entered into a recessionary phase due to the impact of COVID-19. Germany had gone into recession in 2009, during the last global financial crisis. This time around, the country’s economy shrank by 2.2%, pushing the nation into recession.

Along with Germany, the Eurozone has also been plagued with problems of its own. Countries like Italy are reeling with high debt and zero or negative growth. During the previous financial crisis, nations like Italy, Greece and Portugal were bailed out by countries like Germany and the UK. This time around, things are looking grim. Brexit has already brought the continent under pressure throughout 2019. Now, the future of the Eurozone lies in the balance and radical economic action and fiscal measures are required by Brussels to ensure the inclusion of countries like Italy.

Impact on other asset classes

Other assets have also been impacted. De Beers, one of the world’s largest manufacturers of diamonds reported a 28% decline in sales. Leading companies have also been forced to close down their sales channels, including exhibitions. Some companies have begun exploring the option of selling online however sales volumes are yet to rise.

The price of silver had fallen to a low of $12.01 on 19^th March 2020, but as the COVID-19 crisis hit the price has surged to a current $27.53. This represents a stunning 129% price rise in just five months. This topic is discussed in detail later but is largely due to silver similarly to gold being classified as a safe haven investment.

Panic and uncertainty

There is an intangible impact of the pandemic, which many people don’t realise. Yet, this impact is disastrous for financial markets. It is often said that the money runs away from where it is scared. Fuelled by speculations on social media and the media, the virus of fear has spread throughout the global economy. In countries where a strict lockdown was designed to stop the virus from spreading, an economic disaster ensued, killing off businesses and depleting jobs. On the other hand, the countries that followed a lighter approach ended up having unbridled transmission of the virus, resulting in the loss of human lives. This is the paradox that the world is dealing with. It is an unprecedented situation, to which there appears to be no immediate solution.

The global stock markets have responded similarly, with the FTSE downward slide started from March 2020. Similar crashes were recorded in the S&P index and the Dow Jones. As the markets turned bearish, investors pulled out their investments. The domino effect of the coronavirus is likely to beleaguer the economy long after the threat of the virus has passed. This is a crisis with a magnitude of epic proportions that no one could predict.

Panic buying of commodities

Another significant impact of COVID-19 has been the turmoil witnessed in consumer markets across the world. As the crisis unfolded, people rushed out to stock food, toiletries, essential items, sanitizers and other disposables. Nielsen, the market research company reported that sales of pasta increased by 168% during the pandemic, while canned pasta and canned meat were up by 148% and 147%, respectively. This kind of consumer behaviour creates a void in the economy, creating supply and demand issues.

When there is an unprecedented spike in the demand for food and other commodities, systems often struggle to respond, and shortages are created. In many developing countries, the COVID-19 crisis has resulted in speculative prices of commodities being charged by unscrupulous traders. In a situation where unemployment is on the rise and families are cash-strapped, this creates a vicious cycle that can severely impact underprivileged members of society.

2019 was Brexit, 2020 is COVID-19

At the same time last year, no one had anticipated that the pandemic would be upon us soon. 2019 was the year of Brexit. Post the general election in the UK during the previous year, Prime Minister Boris Johnson moved forward to sign the Brexit deal with the European Union. As the threat of a no-deal Brexit loomed over the country for a long time, the price of Sterling had weakened. Naturally, the gold prices went up, as investors lost confidence in the British pound. The uncertainty that the UK might leave the EU without a deal in hand, further impacted the value of the Sterling. The price of gold had shot up shortly after the Brexit vote in June 2016.

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The former Governor of the Bank of England, Mervyn King said,

“The world economy is sleepwalking into a new financial crisis”.

Lord King was in charge of the Bank of England in Threadneedle Street during the 2008 financial crisis. He warned that a stagnating world economy was poised at the brink of yet another major financial crisis. A low growth trap, compounded by the uncertainty around Brexit, the US-China trade wars, political tensions within Europe regarding the direction of the Euro and socio-political issues in the emerging economies were all key factors for pushing the world towards another debacle.

Ironically, in hindsight, we realise that the world economy was already fraught with numerous problems. No one knew that COVID-19 would soon arrive. By August 7, 2019, the price of gold breached the $1,500 mark. It hovered at these levels through the next few months, reaching a price of $1,527 on 2nd January 2020. It reached a new high of $2,067 on 6^th August 2020.

Financial markets in turmoil

Businesses in the UK were already struggling, amidst plummeting sales driven by a drop in consumer demand. For example, high-street retailer Laura Ashley was struggling by February 2020, to save the business. The company reported an 11% drop in sales through the latter half of 2019. The company’s share price went down by 38% when the media reported the news. By this time, borrowing restrictions were already in place by the major banks and struggling high-street businesses were finding it hard to stay above water.

The 2020 oil crisis

A well-known parameter used to check the health of the world economy is the oil price. During the 2008 recession, global oil prices had dropped to $33.87 a barrel in December 2008. The 2020 oil crisis, also known as the coronavirus oil crash, had very little to do with the virus. The breakdown of talks between Russia and Saudi Arabia triggered a price war in March 2020, when the OPEC failed to stabilise the market. Saudi Arabia went on to dump crude oil into the market at heavy discounts. As a result, WTI crude plunged by 24.59% to trade at $31.13 per barrel. This was a historic low since the Middle Eastern war in 1991. Goldman Sachs, the global investment bank cut back its 2^nd and 3^rd quarter Brent forecast for the year to $30 a barrel, indicating that prices could eventually fall as low as $20. Read our detailed article about the relationship between gold and oil prices.

Banking and the global stock markets

Sergio Ermotti, who heads the Union Bank of Switzerland (UBS), has been quoted as saying that he has never witnessed the magnitude of what he is seeing now. Banks have been saddled with a problem of epic proportions, which include weak profits, little or no dividends or bonuses. Sadly, this comes at a time when investors are already tight-fisted. After the sub-prime housing market crisis of 2008, most banks across the world took steps to protect themselves against another similar meltdown. However, the COVID-19 crisis has caught everyone off-guard. A combined sum of US$139 billion has been set aside for loan loss provisions. However, the financial experts at Accenture have predicted that the actual cost of bad debts could rise to US$880 billion by 2022.

Back home, things aren’t great either. In June 2020, Forbes magazine published a scathing article titled “The UK economy is broken”. In that article, the Bank of England chief is reported to have said that the current financial crisis is the worst in 300 years. That takes us back to an era that predates the industrial revolution. The implications of that statement are huge. It would imply that as the current crisis unfolds, it will reach a dimension never seen by anyone in their living memory.

Government debt level has crossed 101% and is headed upwards. On the other hand, the tax coffers are emptying, as overall tax collections have reduced by 28% or more. This includes VAT, down by 46% and income tax, down by 29%. In the scheme of things, the government would find it very hard to bail out the UK banks in the event of a collapse, like it had done in the case of Northern Rock and RBS, back in 2008.

The stock market crash 2020

The COVID-19 stock market crash started on 20^th February 2020. By March, the global stock markets had fallen by approximately 25%. Of course, this was a case of investors turning bearish as the pandemic started spreading and the news hit the stands. It’s interesting to note that barely a few days before, on 12 February the global stock markets were at an all-time high. This included the S&P, NASDAQ and the Dow Jones. It goes to show how fragile and volatile equity markets can be. In reality, when the market free-falls, there is no safety net.

By May, there was a recovery rally and the US indices hit new highs on 17^th August 2020. Interestingly, this bull-run on Wall Street was led by technology companies who operate in areas like cloud computing and machine learning. The lockdown had proved to everyone around the world that education, business and many other services were moving online in the post-pandemic phase.

Virtual events were being hosted all over the world, while consumers have moved to ‘no contact’ online shopping. Videoconferencing players like Zoom are suddenly seeing a huge surge in their businesses, as all business meetings and conferences are being conducted through remote facilities. Investors were, therefore, keen to invest early in these companies, along with the likes of the big players like Amazon, Microsoft and Apple.

It’s important to note that the current correction and buoyancy in the stock market is not reflective of the global economy at large. Stock markets have historically risen on investor sentiment. At the moment, it appears that investors have turned to the market in the hope of making quick gains, despite the fear of coronavirus. The nature of such volatility usually creates a bubble that the general public should be wary of.

The decline of other business sectors

In reality, a closer look at the high-street tells us that every sector in business is suffering. Airlines have suffered huge losses, along with the tourism and hospitality industry. The popular European airline Flybe, which had been rescued from the brink of a financial collapse last year, has gone into administration. The weakening Sterling has impacted all UK airlines, with an increase in the cost of aviation fuel and aircraft leasing. However, this added to the woes of Flybe, which had a 40% exposure to the regional UK air travel market. Once the domestic market shut down due to COVID-19, it was practically the last nail in the coffin for the airline.

In the hospitality segment, restaurants and tourism were hit hardest by reduced consumer spending and travel prohibitions. 27% of UK residents delayed their vacation plans due to the outbreak of the virus, while a further 11% were forced to cancel their existing holidays. This has had a huge impact on the entire tourism sector in the UK. The country regularly enjoys a surge of tourism during the summer months from overseas residents, which has come to a grinding halt this year.

Tourism in England alone brings £106 billion annually, supporting 2.6 million jobs in the UK. Market pundits now predict that the tourism sector in the UK is likely to shrink by 59%, leading up to 2021. It’s important to bear in mind that these figures merely represent the leisure segment. Commercial and business travel, which is a huge contributor to the UK economy has vanished completely.

Likewise, the sports and sports event sectors have also taken a hit. The revenue in these sectors come from multiple streams. Firstly, fans and audiences contribute to revenues by attending events. Then, there are revenues associated with travel and tourism-related to sports. The collection of viewership revenues from television channels is yet another big contributor. Lastly, the sector generates employment for individuals tasked with security, maintenance, ticket collection, and several other services. Sports education is also a major contributor.

In an unprecedented turn of events, the Olympics and Paralympics scheduled to be held in Tokyo, Japan were postponed till 2021. The world had geared up for this great sports extravaganza, but now all the revenues and jobs surrounding the events have been shelved temporarily. While the games are scheduled to be held in 2021, it remains to be seen how the coronavirus battle will be played out. If the pandemic is still around in 2021, the games may be further rescheduled or cancelled altogether.

Business dependencies on China

The coronavirus could not have picked a worse time to enter the world. The US-China trade war had just started easing out when the coronavirus pandemic took hold. Possibly one of the biggest fallouts has been the exposure of dependencies on China that global businesses have today. The US, Japan and France have started advising their companies to limit their reliance on Chinese manufacturing within their supply chains. In fact, when the pandemic started in China, the first thing that happened was a breakdown of the international supply chains linked to Chinese manufacture. In a globalised economy, the effects of the coronavirus disruption were felt instantly as the supply of goods simply vanished.

The pharmaceutical industry is trying to limit their reliance on Chinese drug manufacturers by initiating efforts to build a raw material supply chain within the United States and Europe. Sanofi SA, a leading French pharmaceutical company is putting an API supplier in place to reduce its dependency on China. The company management says that this development will be an important one for the pharmaceutical giant, as it will become the second-largest global producer, notching up annual sales figures of €1 billion by 2022.

In 2019, Chinese manufacturing companies had secured US$223.7 billion worth of business. Automobile parts, computer peripherals, and even plastic goods arrive in the West from China. Apart from being a base for low-cost manufacturing, China is also a lucrative market. The country has more than 1.3 billion consumers, many of whom are upwardly mobile and display healthy spending patterns. This provides much-needed relief for international companies, whose markets in the West have significantly declined due to lack of consumer liquidity.

Currency markets in turmoil

The long arm of COVID-19 has reached well beyond the global banking sector, stock markets and business sectors in countries. It’s no surprise that the global currency markets have felt a significant impact. The weakening global economy, backed by the rise of unemployment in the US and Europe has led to investors moving to the US dollar as a solid, safe currency.

Although many believe that this could be a silver lining for the US, in reality, these movements do not reflect a long-term commitment to the US economy. Government debt is at an all-time high, along with rising unemployment. The fundamentals of the US economy could be undermined by these long-term factors, and the current price of the dollar could be driven by short-term investor sentiment. A lot depends on the US elections scheduled for November 2020. Additionally, the rise of the US dollar will create inflation for other currencies around the world, impacting imports of goods and services.

The British pound, however, has declined to its lowest level in 30 years. Market experts believe that the weakness of the pound could be dependent on speculations regarding the UK government’s plans to fund emergency economic measures to weather the storm of the coronavirus pandemic in the country. The package of fiscal measures announced by the British government simply means more borrowing for the UK. Economic experts are worried that the UK may be steering headlong into a debt crisis with no immediate solution in sight.

Why has gold bucked the trend and remained up?

It is now abundantly clear from the points discussed above, that the COVID-19 pandemic has hit deep into the heart of the global economy. Gold, however, has beaten the pandemic blues and continues to climb to record levels. This is largely because gold is considered to be a safe haven for investors. During the height of the 2008 economic crisis, gold reached an all-time high, crossing the $1900 barrier. That record has now been broken and the spot price of gold crossed $2000 in August this year. Falling interest rates, lack of confidence in the world economy and the uncertainty in the currency markets have all contributed to the rise of gold. With the gold demand in focus, an unprecedented level of 734t of gold has flowed into gold-backed ETFs.

The journey to this unprecedented price point had already started in 2019. Although the world was unaware that the coronavirus pandemic would soon be coming, wary investors had already started moving to gold to strengthen their investment portfolios. There were talks of yet another global recession on its way. If we look at gold price charts from September 2017, we can see that the spot price of gold never crossed the $1,500 price point up to August, last year. On 7^th August 2019, the price of gold reached $1,506 for the first time in three years, almost a year ago. In April, earlier this year, the gold price hit the $1,700 mark, subsequently reaching its highest point of $,2067 on 6^th August 2020.

Supplies of gold remained strong and resilient throughout this period. In the first quarter of 2020, many refineries were shut, along with mining company operations. The travel restrictions also disrupted the supply chain. These disruptions caused market premiums to rise on the back of high demand.

The table below covers the percentage growth rates of gold from 2005 to 2011 during the bull-run. In the adjoining column, the Bank of England interest rates during these years are shown. In 2009, the UK embarked on its first quantitative easing programme, dropping interest rates to a historic 0.50% and releasing £75 billion into the economy through quantitative raising. There were no other quantitative easing programmes launched during 2005- 2011. The next one was during the Eurozone debt crisis, releasing £375 billion of relief into the UK economy. The Brexit QE program released £445 billion in 2016 and the 2020 coronavirus pandemic QE program released £745 billion.

Years	Percentage Rise for Gold	Bank of England Base Rate	Quantitative Easing (QE)
2005	31.06%	4.50
2006	8.95%	Aug 06 – 4.75 Nov 06 – 5.00
2007	28.88%	Jan 07 – 5.25 May 07 – 5.50 Jul 07 – 5.75 Dec 07 – 5.50
2008	42.75%	Feb 08 – 5.25 Apr 08 –  5.00 Oct 08 – 4.50 Nov 08 – 3.00 Dec 08 – 2.00
2009	14.77%	Jan 09 – 1.50 Feb 09 – 1.00 Mar 09 – 0.50	UK’s first QE program reduces the base rate to 0.50 and QE of £75 billion announced to aid the economy.
2010	32.82%	0.50 throughout
2011	12.28%	0.50 throughout

Why is gold lucrative for investors?

When building a portfolio, gold is a great choice for investors since it creates insurance and balance for the portfolio. It insures against times like these when the global economy and capital markets go into a tailspin. Gold is essentially a mechanism for hedging the risks associated with other vehicles of investment. An important attribute of gold is that it is not subject to counterparty risks. These are risks that are inherent in any form of paper-based investments, such as stocks, mutual funds, bonds, etc.

Silver prices rise in 2020

Silver was at a 10-year low price of $12.01 per oz on 19th March, which was around the time that COVID-19 really started to take a grip in Europe and the US. Following this, silver prices added 25% between April to June 2020, with May alone rising from $14.94 to $18.28. The main factors causing this were:

1. Safe haven investments – silver’s association with gold as a safe haven investment meant that silver retained and improved its value as it was seen as a cheaper alternative to gold which was rising massively.
2. Retail bars and coins surge – there was a surge in silver bars and coins demand, with coin sales in particular 60% higher year on year. This at a time where transportation of products was challenging lead to supply problems, longer lead-times for delivery and product premiums.

• Silver jewellery demand – the demand for jewellery has also surged, with massive demand reported in India and China, where Seeking Alpha reports a 104% increase

1. Silver equities – similarly there were share price increases of silver ETFs and mining companies rose sharply in the period. This was due to a surge of investments in these equities, which was against the market trend (not every sector loses with COVID-19).
2. Reduction in supply – silver mines production are expected to fall by 5% in 2020, to 797 million ounces with other inputs (e.g. recycling), there will be total supply of 978 million ounces. This is the lowest silver supply globally since 2009.

There are too many factors to list all of them, but the above will give an idea. The silver price increase was in spite of a drop in industrial demand due to COVID-19 disruptions to industrial output (e.g. photovoltaic cells in solar panels).

The gold to silver ratio currently is 71.2, which suggests that silver remains an excellent investment as for much of history this has traded at only 15 oz of silver for 1 oz of gold.

Call Daniel Fisher, CEO of Physical Gold to discuss gold investments during COVID-19

To respond to the increased demand for gold, we have added some excellent bundled deals that can protect your wealth and strengthen your portfolio. We now have a bundle of 10 bars, with each bar weighing 10g. Similarly, there are 3 bar and 5 bar bundles weighing 50g and 100g, respectively.

The gold price is clearly at an all-time high, no matter which currency you want to buy gold in. In GBP terms, the price of gold has shot up by more than 35.6% in 2020 alone. Many investors are adopting a ‘wait and watch’ policy. We often receive feedback from these investors that they feel they’ve missed the price point and now need to wait for the prices to go down, for them to invest. This couldn’t be farther from reality. Gold prices rise steadily, and a gold bull-run does not necessarily end at the end of the year.

Many people think that the COVID-19 pandemic will simply end, as suddenly as it appeared, and the economy will revert to normalcy by 2021. At Physical Gold, we believe that this is likely to be a sustained run and buying gold can protect your wealth even now if you haven’t bought already. The last gold bull-run took place from 2005 to 2011. During that time, we had countless discussions with buyers about what they should do. If you’re thinking of buying gold during the current pandemic, please speak to Daniel Fisher, by calling (020) 7060 9992 or contact us online and we’ll get back to you.

 

Image Credits: Pixabay, Wikimedia Commons, feiern1, Wikimedia Commons, Public Domain Pictures, Wikimedia Commons, Wikimedia Commons, Wikimedia Commons, Wikimedia Commons, Christoph Meinersmann/54, Jeremy Schultz and Wikimedia Commons

It is becoming increasingly apparent that the COVID-19 crisis has caused unprecedented disruption in the markets. Accepted constants in the market have been broken, as the price of gold has skyrocketed, while other commodities have moved in different directions. For more than 2 ½ decades, the gold oil ratio has been around 15:8. In layman’s terms, this means that 15.8 barrels of crude oil are worth the same as a troy ounce of gold.

Back in 2005, this ratio dropped to 6:2 due to massive rises in the price of oil. But, apart from these periodic aberrations, the gold-oil ratio has more or less remained constant. Oil price volatility has also driven this ratio up to 47:6 in 2016. So, what happened in 2016? The price of gold rose by 6% to jump to $ 1127 per ounce. Oil prices performed poorly in that year, along with the stock markets, but the ratio was disrupted as gold prices continue to rise.

Why is the oil to gold price ratio so important?

The common umbilical cord shared by both gold and oil is the US dollar. Since both gold and crude oil are priced in the market in US dollars, there is a correlation between the two commodities. Gold is considered by many to be more than a commodity – a precious metal that locks in value provides insurance against inflation and other market forces and hedges unwanted market risks. Oil, on the other hand, is representative of the energy we use in a fossil fuels based world. This simply means that all countries in the world have to acquire monetary resources to buy oil to run their economies.

Apart from being dollar-denominated assets, the price of crude oil is an important influencer in the stipulation of gold prices, gold mining company stocks and ETFs. Due to their valuation in the same global currency, a rise in the US dollar usually means the fall of other dollar-denominated assets. In this scenario, investors are wary of purchasing these assets as they become more expensive. So, ideally, when the US dollar falls, gold falls, as it becomes more affordable due to their strong linkage.

Inflation is also linked to the price of oil and gold

Interestingly, there is another dimension to the problem. The rise of crude oil prices usually pushes up inflation. However, as we know, gold protects investors against inflation. The demand for gold, and subsequently its value also increases whenever there is a spike in inflation. So, now we can see the direct relationship between gold and oil prices. Gold does not behave like other dollar-denominated assets. The demand for these may plummet with the rise of oil prices, but gold, due to its inflationary protection attributes continues to remain attractive to investors when inflation is pushed up, due to oil prices.

Economic slowdown due to the increase in oil prices

Since all countries have to buy oil to fuel their economic growth, a rise in the price of oil slows down the economy. The domino effect that this has on industry dampens economic growth. Consequently, there is a fall in equity markets and investors move to gold. Once again, there is a direct correlation between the price of oil and that of gold. Recessionary phases like these can be lucrative for precious metal investors as they can book profits with the price of gold moving upwards. Surging oil prices can adversely impact the share price of mining companies, as well. Since oil is widely used in mining, rising oil prices squeeze the margins of these companies, resulting in a dip in their share prices.

So, what changed through 2019 and 2020?

At the beginning of 2019, the gold price ratio was 23:1, which was already high, but it rose further. Numerous factors affected the price of gold, resulting in significant increases. The world was already poised on the brink of a financial implosion that led to an avalanche.

Investors starting to move their investments to gold bars (with sizes such as 1oz, 100g and 1 kilo) and gold coins (such as gold Britannias and gold Sovereigns). Other factors responsible for the rise of gold were:

• the economic uncertainty in Europe due to Brexit
• increased government debt in most countries in the developed world
• the US-China trade wars and
• socio-political tensions across the Middle East and other parts of the world.

All of these factors also led to the volatility of the global stock markets, resulting in more demand for gold. The COMEX gold futures price breached the $1400 per ounce mark in June 2019.

How did the pandemic change the game?

For all practical purposes, 2020 is not a normal year. The oil crisis started with Russia and Saudi Arabia at loggerheads with each other regarding the future of oil. Russia had refused to ramp up production to keep oil prices up. The price war was eventually triggered in March 2020, when OPEC failed to stabilise the market. Saudi Arabia started dumping crude oil into the market at heavily reduced prices.

This resulted in the WTI crude going down by 24.59% and reached a price of $31.13 per barrel. These prices have never been witnessed since the Middle Eastern war, which took place in 1991. The global investment bank, Goldman Sachs cut back on its outlook on Brent oil for the second and third quarter of the year, reducing it to $30 a barrel, with indications that eventually prices are likely to be as low as $20.

Has COVID-19 changed the gold oil ratio forever?

So, here was a new trend with oil prices falling and the price of gold reaching its highest point ever to $2067 on 6^th August 2020. As we have seen above, the price of gold falls along with the price of oil. However, COVID-19 was different. While oil was dumped at cheaper rates, global economic fears prompted investors to buy gold in the hope of protecting their wealth.

The 2020 fall in oil prices was not entirely linked to coronavirus, but a reduction in industrial demand for oil due to manufacturing output reduction was. As were corresponding drops in fuel usage by the public as they travelled less and also the reduction in worldwide travel also created a reduction in demand for oil.

The rise of gold was certainly linked to the implosion of the global economy caused by COVID-19. It would be premature to say that the gold oil ratio has changed forever. 2020 has not been a normal year. It may take a couple of years during the post-pandemic era for things to stabilise, but once they do, the correlation between oil prices and gold may revert to pre-2020 levels.

For more advice on buying gold at the right time, call Physical Gold

Our gold researchers continuously study economic trends related to the international gold markets. Many people believe that the current price of gold isn’t viable for them to make a purchase. To get the right advice on selling and buying gold and silver, call Physical Gold Limited on (020) 7060 9992 or contact us online. We would love to speak to you and impart the right advice on buying gold.

 

 

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Tax-free gold price on the way up

With tensions in Syria reaching boiling point, a few years ago, it hasn’t gone unnoticed that the price of gold had steadily risen at the time as the world prepared for conflict.  Since then, a plethora of myriad challenges has hit the world economy. It has now been a long 12 years since the days of 2008 when the world faced its most severe financial crisis.

The US sub-prime housing market collapse triggered off a chain of events that eventually brought global financial institutions down to their knees. The period witnessed the demise of Lehman Bros and a large number of global financial institutions followed suit. But, economists all over the world had hoped that in time, the crisis would dissipate, and the world economy would be buoyant once more.

Ongoing crisis fuels gold price

This was not to be. Instead of a healthy recovery, the global financial markets simply settled into a bearish and sluggish phase that lasted for most of the decade. A change of guard at the helm of the great nations could not provide a viable solution to the problem. On the other hand, geopolitical events around the world continue to queer the pitch for a recovery.

The uncertainty surrounding Brexit and government debt across Europe created a problem. Of course, there was a renewed escalation of conflict in the Middle East, along with the increasing threat of global terrorism that led to greater levels of economic uncertainty. This was further compounded by other factors like the US-China trade war.

At the height of the recession, gold reached its highest ever peak in August 2011, when the spot price of 1 ounce of gold touched $ 1900. This rise was attributed to wary investors moving away from market-linked instruments and hedging their risks by investing in gold. Now, in 2020, we can once again see the spot price rising all the way up and it has already reached above the $1600 mark. Investors are once again depending on the safety of gold.

The reliable safe-haven investment is now technically in a bull run again after gaining more than 20% from its June lows. Tracking the tax-free gold price is essential if you’re to time your entry into the market well and maximise returns.

When is gold tax-free?

Tax regimes can vary dramatically around the world, so we’ll just focus on the tax treatment of gold in the UK. All investment grade gold is VAT exempt, meaning you’ll pay no tax when you buy. To qualify as investment grade, the gold needs to be 22 carats or higher in purity and in the form of a bar or coin. So this instantly discounts the merits of lower grade jewellery, or gold in the form of dust as tax-free gold.

Owning physical gold bars and coins doesn’t produce any dividends like a gold mining share might, so a holder also avoids paying any tax while holding them.

The final piece in the jigsaw is whether any tax will be applicable upon sale – known as Capital Gains Tax (CGT). Generally speaking, any profits you’ve made are liable for CGT once you’ve breached your annual allowance. So, if you sell gold bars or foreign coins such as Krugerrands, you may have to pay CGT.

However, the amazing loophole lies with British coins. Namely UK Britannia and Sovereign gold coins are actually legal tender in the UK. As such, the Treasury can’t tax you on their movement, essentially rendering them CGT free! So if you want to avoid paying tax when buying, holding and selling gold – Sovereign coins are a great place to start.

What influences the tax-free gold price?

There are several variables which contribute to the price of Britannia and Sovereign coins. Firstly, the age and condition of the coins. Generally, brand new coins will trade at a 1-2% premium to circulated coins. In my opinion, older coins offer better value as you’re unlikely to receive the same premium you paid when you come to sell brand new coins.

Secondly, the number of coins you’re looking to purchase will impact the price you pay. Generally speaking, you should benefit from economies of scale with the premium you pay shrinking as you buy more.

Physical gold price affected by supply and demand

The fact that the UK gold coins are real and tangible, rather than simply paper gold like ETFs or mining shares, means that supply and demand will also influence the gold price.  If the market experiences high demand and/or restricted supply, then you may find yourself paying higher premiums for the same coins.

Finally, the place from which you source your gold coins will have an impact on price. Buy direct from the Royal Mint and you’ll pay over the odds due to packaging and presentation. However, purchasing from a reputable gold dealer should keep premiums to a minimum.

Where can I track current gold prices?

If you don’t want to have to call a gold dealer every 5 minutes to gauge prices, it’s useful to be able to trace the approximate price on the internet. There is a relatively easy way to do this. Reputed gold dealers will display the current price of gold on their websites.

As you may be aware, the price of gold is a dynamically moving number and is usually reflected on a ticker, which is displayed at the top of the website. The display gets automatically updated every minute. By checking the ticker, you can stay up-to-date with the current price of gold. Also, in today’s day and age, there is an app for just about anything. Several gold apps in the market can also track the price of gold in real-time and keep you updated.

If you’ve already bought gold coins, you may simply want to track their value. While the factors discussed above will determine the exact price, it is possible to estimate its value from the gold spot price.   This price moves throughout the day and is fixed twice daily – known as the London fix. These fixes can be found on the LBMA website or the live price with a gold dealer such as Physical Gold Ltd. You can then simply add a premium of between 7-12% to obtain a decent guide to the price of tax-free gold.

Call us for any advice on buying gold

At Physical Gold, we have a specialist team who can advise you on all matters related to the sale and purchase of precious metals. This includes guidance on the price of gold and how to invest in tax-free gold. We are one of the most reputed online precious metal traders in the country. Call our gold experts today on (020) 7060 9992 or simply reach out to us via our website. Our friendly customer service team is always at hand to ensure that you make the right investments when it comes to gold and silver.

 

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Coronavirus and gold prices

February 24^th, 2020 saw gold prices surge to a 7 year high. Concerns about a COVID-19 coronavirus global pandemic upset the markets, we investigate reasons for recent events in this latest article.

What is the COVID-19 coronavirus?

The expression “coronavirus” is actually a term used to describe a large family of viruses, which cause a range of conditions ranging from the common cold to more serious illnesses such as MERS and SARS. The virus outbreak in 2020 called the “coronavirus” is actually COVID-19, a new strain of the coronavirus family, which had previously not been known to have infected humans.

Signs to look for with COVID-19 are breathing problems, cough, fever, respiratory problems and shortness of breath. In most cases, the virus is fairly innocuous and only creates mild conditions in the sufferer. More severe complications can lead to acute conditions such as kidney failure, pneumonia, respiratory syndrome and worst-case scenario even death.

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Mortality rates are not yet fully known, although the World Health Organisation estimates that between 1-2% of people infected with the virus will die. There is as of the time of writing (25^th February 2020) no known vaccine, although research to create a vaccine is being undertaken rapidly around the world.

Why are there fears of a pandemic?

As I write the World Health Organisation says: “The World must prepare for a COVID-19 pandemic”. This doesn’t necessarily mean a pandemic will occur, but the world needs at least to be prepared.

According to the Merriam Webster Dictionary a definition for a pandemic is:

“An outbreak of a disease that occurs over a wide geographic area and affects an exceptionally high proportion of the population. A pandemic outbreak of a disease.”

Currently, there have been 77,000 cases in China and 1,200 other cases around the world, which are spread over 30 countries. According to the NHS, COVID-19 is a High Consequence Infectious Disease. Although, seen as a lower-mortality rate than SARS and previous viruses it is the infectiousness of COVID-19 that makes a pandemic likely. The virus spreads itself mainly through the air but also can spread through bodily contact.

Reasons why the COVID-19 coronavirus outbreak is likely to increase gold prices

Now what you may be wondering will the impact of COVID-19 have upon gold and other precious metal prices? We summarise some of the main impacts below:

• Avoid risk and losses/investment channel switch – many investors will simply “ditch” some forms of investments (e.g. stocks and currency) and move to precious metals until the risk is reduced/eliminated
• Mitigate market uncertainty – investors are likely to have a balanced portfolio of investments. To mitigate market risks, investors are likely to switch at least a proportion of their portfolio into safe haven investments such as gold and silver

The recent surge in gold prices

On February 24^th, the Dow Jones Index fell 3.5%, the UK FTSE fell 3.3% and the Milan stock market fell 6% (mainly because Italy had a large outbreak). These wiped out an entire year’s worth of index gain on the Dow Jones in just one day. Companies with high exposure to China (Disney, Nike and Apple) and travel companies were most affected with EasyJet falling 16.7% in one day and British Airways falling in price.

As shares are sold, generally investors will look for an alternative asset-class to invest their funds into (typically safe havens). Conversely to shares, gold prices hit a 7-year high on February 24^th 2020. The reasons for this price rise are multi-faceted (as changes in gold price always are) but undoubtedly an underlying tension about the possible global economic impact of COVID-19 is the main factor.

Most Analysts believe that gold prices will continue to rise, particularly in the short to medium-term. Investors are currently moving out of stocks/shares and currencies and investing in safe haven assets such as gold and silver.

It proves once again that investors value the tangibility of gold and at times of economic uncertainty, investors value investments they can “feel and touch”, especially ones which can be used as a highly liquid alternative form of currency to traditional cash.

Buy gold and silver as a safe haven investment from Physical Gold Limited

The team at Physical Gold have vast experience in precious metals trading. Check our About Us page to view our accreditations and trade memberships.

 

Call us today on 020 7060 9992 or email us to contact the team. We can speak about your current circumstances and suggest the best gold/silver investment strategies to meet your needs.

 

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We last wrote in detail about the topic of Brexit in August 2017 and it’s an understatement to say that a lot of water has passed under many bridges since then! So, another article is well overdue, so please read our views on “The impact of Brexit on Gold Prices, UK Politics and the Economy”.  As we are UK-based, this article will have a UK-perspective. All assumptions are as at 29^th November 2019 – opinions and facts change daily (it seems) – but this was our viewpoint at the time of writing!

What is Brexit?

Everybody knows about Brexit, but we thought it would be a useful start to define what Brexit is. To do this, we have used the Cambridge English Dictionary definition:

“an exit (= act of leaving) by the United Kingdom from the European Union (short for “British exit”)”.

This BBC article is also very interesting about the rapid adoption of the word “Brexit” into the English language along with words such as Brexiteer.

A full Brexit involves leaving both the single market and customs union. We discuss the different ways Brexit could be implemented next.

The different varieties of Brexit

There is no “one size fits all” for Brexit. This is one of the reasons that the UK parliament has struggled so much to vote Brexit through. We list below the different varieties of Brexit and in particular the implications they have for gold investment.

1)    No Deal

Although UK PM Boris Johnson has agreed on a deal in principle with the EU a no deal is still very much a possibility. The UK could still complete Brexit without a deal if the withdrawal agreement is not signed off by January 31st, 2020 or by December 31st, 2020 (the end of the transition period). A no deal is looking much less likely (than it was at one stage), but if the Conservatives won by a significant parliamentary majority in the December election the chances of a no deal would increase.

In the event of a no deal, there would be the greatest amount of uncertainty and disturbance to markets, UK trade would take place under WTO (World Trade Organisation) rules. A no deal would initially leave the UK in an isolated and vulnerable trade position. UK businesses would become less efficient and would trade with lower profits due to tariffs, work visa restrictions, increased regulations, supply access, etc.

Markets hate uncertainty, a no deal Brexit causes the highest amount of uncertainty possible. If a no deal Brexit happened the likelihood would be a surge in demand for gold, which would snowball as investors sought a safe haven investment. The price of £ sterling would also be very likely to fall at this point.

2)    Hard Brexit

This is a deal based Brexit where the UK leaves the EU entirely, there would be no freedom of movement for workers and the UK would not have access to the single market. A hard Brexit is favoured by many Conservative MP’s but was difficult to negotiate with the EU. The harder the Brexit the more likely a no-deal scenario became.

From an investment perspective, a hard Brexit would again create uncertainty. Investors would be very likely to sell UK company shares and seek alternative safe haven investments such as gold. As a currency, £ sterling would weaken following a hard Brexit. The British economy would struggle for a period until new international trade deals could be negotiated with the EU and the rest of the world. Investments in the UK would reduce, so attracting capital would be likely problematic for a period.

Although a hard Brexit would cause an increased demand for gold, this spike in demand would be much less than a no-deal scenario would cause.

3)    Soft Brexit

This once again is a deal based Brexit where the UK leaves the EU but remains a part of the EU single market. This is the part of the EU, which allows the free movement of goods and people within EU member countries. This variety of Brexit is favoured by some Conservative MP’s as well as those of opposition parties.

The only realistic scenario for a soft Brexit is if the Labour party won. Following a second referendum, it is considered quite likely that Labour party members would prefer a soft Brexit to protect workers jobs and cause as little disturbance to the UK economy as possible.

A soft Brexit still represents the UK leaving the EU. This, therefore, creates uncertainty and a likelihood that some investors would seek a safe haven investment such as gold. The impact on gold prices of a soft Brexit would be somewhere between those seen of a no Brexit and hard Brexit.

4)    No Brexit

There is still a chance that Brexit may never happen! This would only arise if Labour, Liberal Democrats or a coalition government win the December 2019 election. This looks like an outside possibility as the Conservatives are favourite to win the election.

If the Liberal Democrats win the election, the results of the 2016 referendum would be ignored and the UK would stay in the EU. If Labour wins, there would be a second referendum where the UK would once again vote (often called “The People’s Vote) to remain or to leave. If Remain won this second referendum, then there would be no Brexit.

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A no Brexit scenario is actually pretty much “business as usual” and would cause if anything a slight reduction in the gold price as the outlook is more certain. The gold price would once again align with other global factors such as the US$ and other world financial influencers.

UK Elections – 12^th December 2019

Largely due to the failure of the Conservative government to deliver Brexit, a general election was announced following an MP’s vote on 29^th October, 2019. The election takes place on 12^th December 2019. This is the first time there has been a UK December general election since 1923. We discuss the possible outcomes of the election below.

1)    Conservative party win – Conservative coalition

This is the most likely outcome, as the Conservative party are widely expected to win the UK election. They may not though have enough of a majority to implement their preferred Brexit and may need to enter a coalition government most likely with the Brexit Party and Democratic Unionist Party (DUP).

Depending on the majority the Conservatives hold they would implement either a hard Brexit or no deal (if a deal can’t be agreed with the EU).

2)    Labour party win – Labour coalition

This is a possible outcome with a coalition government appearing more likely than an outright labour party win. Labour could form a coalition with SNP (Scottish Nationalist Party) and/or Liberal Democrats.

With a labour majority, there would be a second referendum (a “People’s Vote”). This still has a high chance of a leave outcome, but with a Labour government in charge, the likelihood would be a soft Brexit. Both the SNP and Liberal Democrats want to remain, so any coalition with these parties by Labour would create problems for Labour actually leaving the EU.

The price of Labour forming a coalition with the SNP would be to allow a second Scottish Referendum vote. This in its own way creates future uncertainty and would possibly mean that Scotland could remain as an EU member or re-join if the UK has already left.

3)    Liberal Democrats win

A Liberal Democrats win is extremely unlikely. If the Liberal Democrats were to win an overall majority, they would keep the UK within the EU. This would have a stabilising effect on the gold price as the UK stays as it is now, this retains the “status quo” and breeds certainty.

4)    Hung parliament, minority government – nobody wins

There is a distinct possibility that after all the votes are counted that no party wins and there is a minority government (most likely Conservative but maybe Labour). In this event, Conservative or Labour are likely to seek a coalition government. Just before the December 2019 elections were called this is the situation PM Boris Johnson faced, which is why he couldn’t easily get his hard Brexit deal voted through parliament. Although a deal was eventually agreed, the timescales for it weren’t – so PM Johnson decided to call an election to sort the Brexit chaos out!

If all attempts to create a coalition government fail, then the UK will effectively have a hung parliament with no party able to effectively lead. This in itself would create great uncertainty in the UK and would lead some investors to safe haven investments such as gold.

For Brexit, a hung parliament would most likely mean further delays. With no government able to implement their policies, a no deal/hard/soft Brexit could not be agreed. Eventually, it can only be assumed that there would be another election to try all over again to get a majority government.

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Formal deadline for the UK to Exit the EU – 31^st January 2020

It’s worth mentioning that the current deadline for the UK to leave the EU is now set at 31^st January 2020. This deadline could be brought forward if agreement on a deal was reached by MP’s.

As a future date, the UK transition period for the UK leaving the EU concludes on 31^st December 2020.

How Brexit impacts gold prices

1)    Breeds uncertainty – investors flock to safe haven investments

The whole Brexit scenario impacts gold prices through uncertainty. Investors love certainty and detest uncertainty. Due to Brexit, particularly in the advent of a no deal or hard Brexit, many investors (particularly those in the UK) will seek a safe haven for their investments.

Your Dictionary defines safe haven investments as:

An investment that people transfer money into in times of turmoil and market uncertainty. Gold, U.S. Treasury bills, notes or bonds, and the Swiss franc are some safe havens for money fleeing trouble.”

We haven’t seen too much Brexit-related safe haven investment yet as Brexit is not classed as “imminent”. When/if Brexit happens, this is the point at which there is likely to be a surge in safe haven gold investment.

2)    UK Government investments “risky”

Investments in the UK government, e.g. bonds and gilts – although classed as a low-risk investment will lack appeal. Investors will seek alternative safer places to invest their funds, which would include foreign government investments and also in gold and other precious metals.

3)    EU single-market undermined and “risky”

Many political commentators are predicting a “ripple effect” following the UK’s decision to leave the EU, with other countries following (like “rats deserting a sinking ship”). This “ripple effect” hasn’t quite happened yet as the UK hasn’t actually left.

There is an impending fear though that Brexit could cause a fracturing of the EU leading to an eventual disintegration and an end to globalisation.

These factors are likely to lead to a lack of confidence in the EU by investors generally and for alternative investments to be sought. One of these would be gold.

4)    Equity investment risk for UK & European companies

Following the UK’s decision to leave back in 2016 there was a knock-on effect on UK equities. Following any actual UK exit, there would be a high likelihood of downgrading of UK equities and also European equities.

Upon Brexit occurring UK businesses would be faced with a range of new issues. There would be increased regulations and red tape, difficulty of access to migrant worker visas, new trade tariffs and also restrictions to parts and materials. All of these are likely to reduce the profitability of UK businesses (especially those with high exposure to import/export), which ultimately means these equities will be less attractive to investors. This will be the case especially in the short-medium term as the consequences of Brexit become clearer.

The UK is a main market for many European countries (France and Germany especially). Therefore, the same issues impacting UK businesses will also impact some European businesses too in a similar way. Trade tariffs added by the UK/EU, for example, would impact businesses, which currently trade without such tariffs.

In a climate where UK & European businesses are less profitable and therefore less investable the inevitable outcome is that investors will seek other investments. Gold will be in a prime position to take advantage of new investment funds.

1)    Currency fluctuation

There will be some currency fluctuation of both £ sterling and Euro relating to Brexit, infact we have already seen this with past Brexit announcements.

Currency investors faced with an actual exit of the EU by the UK are likely to choose to hold their cash in liquid assets such as gold rather than £ sterling, which is riskier due to the Brexit process. Although gold worldwide is priced primarily in $, the price per oz in £ sterling can be expected to rise post Brexit due to a weakening of the currency.

Contact Us

We appreciate that Brexit brings uncertainty and concerns to investors. If you would like to discuss any aspect of diverting investment funds into gold investment, then contact us by calling (020) 7060 9992 or alternatively complete our contact form. We will be pleased to help and can offer a wide range of gold coins, gold bars and silver investments.

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Caveat

Naturally, this blog represents the views of Physical Gold Ltd. We would always recommend that customer’s complete their own research and seek impartial investment advice before acting on any of the content in this article.

Gold Price Per Oz

This video focusses on the gold price. In particular, many investors new to the market, struggle to understand how the gold price works, what moves it and how to calculate prices of physical gold coins and bars.

My aim today is to walk you through some of the basics so you’re better equipped to understand the gold market and profit from it. In particular, I’ll explain 2 crucial concepts.

Concept 1: The price moves constantly

The most important concept to understand is that the gold price is fluid. While the market is open, the price moves constantly. The market closes for only a few hours each day between New York closing and Asia opening. It’s closed at weekends and a small handful of major holidays like New Year.

Currency conversion

The gold price is quoted in US Dollars per ounce and generally then converted to grams and other currencies. So if you need to calculate the price per gram in Sterling, you’ll first need to divide the $ price per ounce by 31.103, then apply the exchange rate. Many gold dealer websites, including our own, will already quote the price in ounces in Sterling terms.

Concept 2: The spot price isn’t where you can buy or sell gold

The price you see quoted as the gold price per ounce,

is known as the spot price of gold. Despite many assuming this is the price where gold can be bought and sold, it actually only acts as a benchmark from which to start.

Regardless of whether you’re looking to trade gold ETFs, buy a few gold coins or are a central bank moving tonnes of gold bars, the price at which these trades are done will be based on the spot price plus a premium.

Type of gold impacts price

This premium will depend on the type of gold investment and quantity. Generally speaking, you can buy gold electronically at a level nearer to spot price than if you opt to buy physical gold. This is because real gold incurs production, design and delivery costs. The second rule of thumb is that the larger quantity you buy at any one time, the lower the premium you achieve. Finally, older coins will trade at larger margins over the spot price of gold due to it’s historical and rarity value.

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How to find out the tax free gold price

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Hopefully, that’s shed some light on understanding the gold price per ounce. If you found this video helpful, please view our full array of video tutorials covering a wide number of gold and silver aspects.

Buy and sell gold at the best prices with Physical Gold Ltd

All our gold coins and bars can be bought at the live prices, which are updated on our website every 60 seconds. That way, you can track their prices and try to time your purchase or sale optimally and rest-assured you’re getting the most up-to-date pricing.

If you need any help setting up an account, buying or selling gold, or simply need some guidance, then please call our team on 020 7060 9992.

A country’s monetary policy usually has some kind of knock-on effect on the prices of all stocks, bonds and commodities. Of course, although we view gold and silver as precious metals, they are essentially traded as commodities. So, all monetary policies will have certain effects on the gold and silver markets. Investors are often confused about what quantitative easing really is and how this move affects markets. Let’s dive in and find out.

What is quantitative easing?

Firstly, quantitative easing is not a normal step taken by the central bank of a country. It is an extraordinary and somewhat unconventional move in which a country’s central bank basically increases the money supply. Many of you may think that’s inflation. But we must understand that quantitative easing does not involve the printing of extra banknotes. The central bank (in the UK it would be the Bank of England) simply buys government securities and other financial instruments from the market in a bid to lower interest rates and increase the money supply, thereby creating more liquidity.

So, the assumption here is that lowering interest rates would add stimulus to the economy by encouraging industry to invest more. When companies invest and start new projects, more jobs are created and additionally, there is a positive ripple effect that kick starts smaller suppliers to also start providing services to the bigger players.

What are the benefits of quantitative easing?

So, quantitative easing (QE) increases the supply of money and financial institutions benefit by increasing their capital base. This promotes lending and increases liquidity, ushering in a revival of the economy. Quantitative easing is usually a step taken when short-term interest rates have fallen to zero or are nearing zero levels. Going by past experience, we can say that if the central banks invest $600bn, the move typically triggers a fall in interest rates of 0.15 to 0.2%.

When did the UK first start exploring quantitative easing and what were the results?

At the height of the last financial crisis, in 2009, the interest rates were dropped to 0.5% for the first time in the history of the Bank of England. The UK economy badly needed a shot in the arm and the first QE programme for the UK was started with an infusion of £75 billion. This was eventually raised to £200 billion. The programme was rolled out on 5^th March 2009. The Bank of England had been contemplating a drop in interest rates to 0.5% from 1.00% for a while. By November 2008, the financial pundits of the Gordon Brown government knew that the drop to 0.5% wasn’t going to be enough. It had to be backed by a parallel strategy that could save Britain from going into a long drawn economic depression.

Alistair Darling, the Chancellor of the Exchequer adopted a financial technique that had been used in Japan during the early 2000s. Interestingly, the same technique had also been adopted by Ben Bernanke, the chairperson of the American Federal Reserve, during the US chapter of the crisis, which triggered the fall of Lehman Bros. The radical macroeconomic technique was designed to put cash back into the hands of banks by buying out the government and corporate bonds they held.

These resources would have a two-pronged effect. Firstly, the new demand for these gilts would drive up their prices, triggering the required fall in the interest rates. Banks would now have money to pump back into the economy and things would be easier for businesses and individuals, as the cost of borrowing would be radically reduced. That was pretty much how the under-performing banks like RBS were saved back in the day. The government was able to bail them out via the QE programme.

Many homeowners also rejoiced at the time, since their mortgage repayments dropped to a negligible level. Many homeowners across Britain seized the opportunity to opt for capital repayment, ensuring that banks were able to recover their sub-prime housing loans, injecting more cash into their reserves. The move was hailed as having a double whammy effect for the sub-prime housing market in the UK. While the banks were able to claw back the money they had loaned, homeowners were able to reduce their debt exposure and free up equity in their homes.

However, many critics have been sceptical about the success of the U.K.’s QE programme. It has been 11 long years since the programme was rolled out. It had been purported as an emergency measure, designed to revive the economy and not a permanent fixture. Additionally, interest rates never recovered completely and remained near zero, as we plunge headlong into the next financial crisis. So, the verdict in the minds of many is that the program was a relief mechanism that did not have long-term success. However, in the backdrop of these criticisms, one must not forget that the UK has had the longest sustained quarterly growth record of any G-7 nation.

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What quantitative easing was taken during the Coronavirus pandemic of 2020?

US response

On 15^th March 2020, the US Fed announced its fourth round of quantitative easing. The Fed is purchasing $700 billion worth of mortgage-backed securities ($200 billion) and treasuries ($500 billion) with three main priorities:

• boosting liquidity within financial systems and
• increasing the aggregate demand by expanding the supply of money
• helping the US to avoid going into a recession

Part of the Fed announcement from 15^th March said

“We haven’t set a gradual schedule for QE, quite deliberately. This crisis in UK financial markets demanded more. We will act in the markets promptly and rapidly as we see appropriate. The alternative was a run on sterling, a flight to the dollar and a complete breakdown of the UK financial system’s core.”

On March 23^rd, 2020 the Federal Reserve announced:

“it would purchase an unlimited amount of Treasuries and mortgage-backed securities in order to support the financial market.”

UK response

On 19^th March 2020 the Bank of England increased quantitative easing in the UK by £210 billion (from £435 billion to £645 billion) through the purchase of government bonds.

Andrew Bailey the new Governor of the Bank of England announcing the £210 billion quantitative easing said:

“We haven’t set a gradual schedule for QE, quite deliberately. This crisis in UK financial markets demanded more. We will act in the markets promptly and rapidly as we see appropriate. The alternative was a run on sterling, a flight to the dollar and a complete breakdown of the UK financial system’s core.”

On 18^th June, 2020 the Bank of England raised quantitative easing by an additional £100 billion (from £645 billion to £745 billion) through an additional purchase of government bonds.

Andrew Bailey said after the additional easing

“As partial lifting of the measures takes place, we see signs of some activity returning. We don’t want to get too carried away by this. Let’s be clear, we’re still living in very unusual times.”

All quantitative easing to date by the central bank for quantitative easing purposes have been (click here for further details):

• November 2009 – £200 billion
• July 2012 – £175 billion and
• August 2016 – £60 billion
• March 2020 – £210 billion
• June 2020 – £100 billion

EU response

On 18^th March, Christine Lagarde the President of the European Central Bank announced the €750 billion Pandemic Emergency Purchase Programme (PEPP). This was for the purchase of private and public sector securities to mitigate the economic risks caused by the COVID-19 pandemic. Purchases will be made up until the end of 2020 for all asset categories, which are eligible under their asset purchase programme.

On 4^th June, the EU announced an additional €600 billion of quantitative easing with an aim of controlling inflation and stimulating vulnerable areas of the EU economy caused by the COVID-19 pandemic. This brings the total response to €1350 billion of quantitative easing when added to the €750 billion from March.

Relative comparisons of response – US, UK and EU

Although, this is a moving picture as at 22^nd March the following amount of quantitative easing has been provided by the 3 different central banks:

• US – $700 billion – 3.3% of GDP initially, but this is unlimited
• UK – £310 billion – c14% of GDP and
• EU – €1350 billion – c13% of Eurozone GDP

The US response was the first and is now seen as a small intervention in the markets. Almost certainly there will be further rounds of quantitative easing from the 3 central banks.

How did the 2008 financial crisis affect QE?

The 2008 financial crisis triggered massive falls in interest rates in the UK. As the crisis broke out, interest rates were at 4.5% on 8^th October 2008. By 5th March 2009, it had fallen to 0.5%. Unemployment rose as businesses failed due to their cash flows being affected by the bank’s refusal to lend. Overall consumer confidence plummeted and the entire economy entered a bearish phase. By March 2009, quantitative easing was introduced. The Bank of England put in an initial tranche of £75bn in new money, rising up to £375bn eventually.

If you want to know “How to sell gold for the most cash”, watch our YouTube video.

The Bank of England actually called it ‘asset purchase facility’ and bought assets from financial institutions like high street banks. Many of us remember the bailing out of Northern Rock at the time. The Bank of England formally started its QE program on 5^th March 2009 after bailing out the high street banks. Initially, it was just long-term government bonds, but by the 25^th of March, the program had been expanded to purchasing corporate bonds as well, in an effort to boost business confidence and increase lending to companies. In 2013, Japan announced a massive QE program going into trillions of dollars to boost its economy, in response to the global financial crisis.

In recent years, the ECB has announced a halt to its QE programme, in spite of a continuing slowdown in the European economy. The ECB is currently investing 30bn euros in buying bonds, although this program was slated to phase out by the end of 2018, Coronavirus and the world economy has caused a change in plan!

What are the effects of quantitative easing on gold and silver?

So, now that we know what quantitative easing is all about and how large industrialised economies used it during the global recession, let’s look at how it affects the gold and silver markets. Well, firstly quantitative easing is a step usually taken by central banks during economic turmoil. We already know that gold and silver act as safe havens during these times. So, if we look at price charts for gold during the period 2009 to 2011, we can see that gold prices skyrocketed during this period.

According to economist Marc Faber, quantitative easing hurts currencies and sends people rushing to buy gold. In 2016 he predicted that gold would continue to rise on the back of the fourth round of QE undertaken by the US federal reserve. On June 14^th, 2018 when the ECB made the announcement to phase out QE by the end of 2018, they also announced that the European economy was still soft and interest rate hikes would not take place till March 2019. This news saw the gold market responding positively on that very day. Therefore, we can surmise that while QE is good news for the economy in terms of its GDP growth at a time of crisis, it’s not good for the stability of currencies. It’s both these reasons that spur the rise of gold prices at these times.

Call us to know more about gold investments

Our investment experts can guide you on the best times to invest in gold and silver and how to approach them. Call Physical Gold Limited on 020 7060 9992 or get in touch online and a member of our team will get in touch with you shortly to discuss your investment objectives and how precious metals can be an important part of your investment plan.

We sell a range of gold bars (sizes from 1oz, 100g to 1 kilo), gold coins (including gold Sovereigns and gold Britannias).

We also sell an excellent silver range, including silver bars (such as a 1 kilo silver bar) and silver coins (including silver Britannias).

Image credit: Wikipedia

Price correlation of gold to silver

While both gold and silver share the banner of precious metals, they’re two very distinctive assets. The price of gold and the silver price certainly don’t move up and down in perfect harmony. In fact the ratio between the two prices can provide valuable insight into the possible future price movements. The gold to silver price ratio has historically been an important factor that influences buying decisions taken by investors when investing in precious metals. There are a few factors that drive investors to buy gold or silver. Most investors do not consider investing in gold or silver in isolation. It is usually a decision taken as a part of a concerted strategy to invest in asset classes that minimise risk and maximise gains for the investor. In doing so, an investor who is creating a portfolio of investments to build wealth over the long term will have an investment window of at least six to ten years to remain invested in certain asset classes.

Understanding precious metal investments

Like a palette of paints available to the painter, the investor uses several asset classes to construct a diversified portfolio. These asset classes could consist of equity funds, debt funds, direct equity, bonds, real estate, cash deposits and precious metals, to name a few. There are many views on how much investment should be allocated to precious metals during an asset allocation exercise. Many investment advisors recommend an allocation of 10 to 15% within a portfolio. However, there are a few compelling reasons for investors to invest in gold and silver.

Gold and silver investments during market crises

Investors often use precious metals as a hedge against market forces. Gold is a popular choice to hedge against both inflation, as well as interest rates. On the other hand, we often see investors flocking to buy gold or silver when capital markets take a plunge globally. In recent times, the 2008 financial crisis and 2011. This was evident during the 2011 financial crisis when global capital markets crashed due to S&Ps downgrade of the US economy. The market crash prompted investors to move their money away from stock markets, and invest in gold. On August 22, 2011, the spot price of gold touched a record $1,900.

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Gold silver price ratio movements

Situations like these simply mean that prices of gold have surged out of control due to astronomically high market demand. During a time like this, if silver prices did not respond adequately to the shift in the market, the gold-silver price ratio would rise and the spread would widen. But this is not the case. Trends show us that the spread falls. For example, the current ratio of gold to silver is around 75: 1. This means that gold is 75 times dearer than silver. It would take 75 ounces of silver to purchase 1 ounce of gold. Now, if the price of gold continued to rise unabated, without a proportional rise in silver prices, the gold-silver price ratio would surge upward, as gold would then become several times dearer than it is now when compared to silver.

An inverse relationship

However, it is important to note that when precious metals enter a bull market phase, silver usually outperforms gold. Since silver is more affordable, demand for it remains higher, driving the prices of silver higher. In recent years, silver price movements are not dependent only on investor demand. Industrial demand and scanty supplies have been pushing silver prices up. When this happens, the gold-silver spread or the difference between the prices of the two metals reduces, and the ratio falls.  A look at the 20-year gold-silver ratio tells us that in 2011 when gold prices were at their highest, the gold-silver ratio fell to a record low of 30.48. On August 22, 2011, silver rose to more than $42 per ounce from a low of around $28 on 1^st February 2011. This was the same date when gold touched its record high.

In 2016, gold prices were above $1400 an ounce, and the gold-silver price ratio was around 65. A close look at 2011 shows us that the price curve of silver outperformed against gold during that period. Therefore, we can say that the gold-silver price ratio has an inverse relationship with market rises. As a gold or silver investor, it is important to understand this relationship and explore the drivers responsible for the rise and fall in gold and silver prices.

Call our precious metals experts to find out more about market trends

At Physical Gold, our investment advisors do not give you tips on how to time the market. We believe that investments in precious metals are best done by understanding the fundamentals of the market and making an educated decision on when and how to invest. Call us now on 020 7060 9992 or get in touch with our team online to find out more about price movements in the gold and silver markets.

Image credits: Public Domain Files and Wikimedia Commons