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 29th 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:
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.
Whatever your Brexit preference to many it’s all a big nightmare!
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.
A hard or no deal Brexit will feel like a gamble to many investors, they are likely to turn to assets like gold
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.
A hard Brexit is a favoured option of many Conservative MP’s
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.
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.
Whatever your views on Brexit if the UK leaves it is the end of an era
UK Elections – 12th 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 29th October, 2019. The election takes place on 12th 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.
Formal deadline for the UK to Exit the EU – 31st January 2020
It’s worth mentioning that the current deadline for the UK to leave the EU is now set at 31st 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 31st 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.
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.
Investors love safe haven investments like gold in times of economic uncertainty
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.
Passports would be one example of a potential regulation change following Brexit
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.
Enjoy our word cloud of Brexit related words!
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.
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.
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.
An explanation of quantitative easing from the Bank of England
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.
Gold is a safe haven for investors during times of uncertainty
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 5th 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.
What quantitative easing was taken during the Coronavirus pandemic of 2020?
US response
On 15th 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 15th 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 23rd, 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 19th 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.”
“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 18th 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 4th 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 22nd 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 8th 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 5th March 2009 after bailing out the high street banks. Initially, it was just long-term government bonds, but by the 25th 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.
The Bank of England introduced quantitative easing in 2009 as part of the monetary policy
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 14th, 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.
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.
The spot price of gold has risen steadily over the years
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.
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.
When silver prices outperform gold in a bull market, the price ratio falls
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 1st 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.
The spot prices of gold change each day on the international commodities markets. These prices of gold are set by the COMEX exchange in New York. These prices remain prevalent through that day. Indeed, like all other commodities, these prices vary due to a number of factors. Of course, one of them is supply and demand. In 2017, the total amount of gold produced was 3.15 thousand metric tonnes. In contrast, this figure was 2,470 metric tonnes in 2005.
The fluctuating demand for gold
The demand for gold, however, is not dependent merely on supply and demand. Like all precious metals, gold is a lucrative asset class that investors turn to in times of turmoil in the international capital markets. For example, the current imminent trade war between China and the US has already seen several risk-averse investors move their money to gold.
Gold prices, therefore, are dependent on macro-economic factors such as economic stability around the world, geo-political triggers such as terrorist action and wars, as well as seismic shifts in the international capital markets. If we study gold prices over the last ten years, we can see that the spot price skyrocketed to $1900 levels in August 2011. This was a huge surge from 2008, only three years back, when gold was $869.75.
The value of gold rises exponentially during economic crises
Volatility in gold prices
This meteoric rise of gold in just 3 years was largely due to the bubbling global financial crisis, which eventually saw the stock markets implode on August 8, 2011, commonly known as Black Monday 2011. But, again the fall of the stock markets at the time was not an isolated event in itself. It was a knee jerk reaction by paranoid investors pulling their money out of the beleaguered US economy, as a result of the US debt ceiling crisis. The American national debt basically spiralled out of control, with Standard and Poor downgrading the AAA rating for the US economy.
During every crisis over the last 20 years – the dotcom bubble, the 2008 US sub-prime debt crisis and the 2011 crisis, investors turned to gold to hedge their risks. So, we can see that the prices of gold react heavily to the economic environment at large. Even inflation is a driving factor, as is the weakening of the US dollar or the pound. However, in the middle of all the ups and downs, gold has steadily become dearer over the decades. The word ‘decades’ is an important thing to note here. As a savvy gold investor, you have to be able to take a long-term view. If you want to extract value from the precious metal, you need to remain invested over a ten or twenty-year period. It’s not the kind of game, where you can make a fast buck, get in or out. Investors who have a speculative approach to investing aren’t going to extract value out of gold.
One kilo of gold is a great investment, but with gold, you have to have a long-term view
So, how much is a kilo of gold?
So, to answer our initial question – how much is a kilo of gold worth? Well, the straight answer is that it depends on purity and price. The purity, or fineness of gold is denoted in numbers. Gold, which is only 75% pure will be called 750. 999.5 means that the gold is almost 100% pure and investors would buy it as such. We can, therefore, calculate how much a kilo of pure 999.9% gold, at today’s prices of £1,459.00 would be. But again, this is the price for 1 troy ounce of gold. What is a troy ounce? A troy ounce is equal to 31.103 grams. Therefore, the price of 31.103 grams of pure gold at today’s price is £1,459.00. So, when we do the math, a kilo of gold at today’s prices is worth approximately £46,908.66. However in the real world, a kilo gold bar cannot be bought at the spot rate but is available at a small premium above that rate. This includes costs such as production and shipping. As of 19 Oct 2022, we’re currently selling a brand new Metalor kilo of gold at £47,769.00.
Call us to find out more about buying gold
At Physical Gold, we pride ourselves on being a reputed online broker and giving investors a fair deal. We have many types of gold that we sell. Please call us on 020 7060 9992 or contact us via email to get in touch with a member of our investments team. We are always happy to discuss your investment goals and advise you on the best gold products to buy.
The price of gold is calculated as spot prices per troy ounce. Spot prices are live prices of commodities at a particular point in time. Needless to say, they fluctuate all the time, responding to different market forces. They do not necessarily respond only to market forces and investor sentiment. The spot price of gold is extremely sensitive to geopolitical pressures, political climate, international current affairs and macroeconomic forces. Money is known to run away from where there are fears. Similarly, investors often invest in gold to hedge against risks in the international capital markets.
Prices of gold – 1998 to 2008
In 1998, the price of gold closed at $288.70 per ounce. There was political upheaval at the time in America, with the impeachment of President Clinton. The current spot price of gold stands at around $1,328.3. This means that gold prices have gone up almost 5 times in the last 20 years. When we look carefully at those price charts, we can see that the big jumps are in 2002 (23.96% increase), up to $342.75. The following year, 2003 again saw prices going up to $417.25 (21.74% increase). With prices steady over the next couple of years, the next big hike came in 2005 (17.77%), as the price went up to $513. Gold went on a rally from here for the next two years, and 2006 and 2007 saw gold prices skyrocket to $635.70 and $836.50 respectively. So, at this point in time, gold was up by almost 3 times, within a ten year period.
Investors often turn to gold in order to hedge their risks against market forces
Before we move on, let’s try to understand what the drivers of these prices were at the time. By digging deeper we find that there was a global recession in the early 2000s, which contributed to the exodus of investors from other investment classes, to the safe haven of gold. In the US, the NASDAQ crashed, signalling the end of the dot-com bubble. The NASDAQ peaked on March 10, 2000, and right at that peak, several big high-tech companies placed sell orders on their stocks, triggering a panic response. The fundamentals of the US stock markets at the time were not robust enough to take the hit and the SEC had not put in place checks and balances to contain large-scale damage. As we have previously discussed, investors simply sold their stocks and ended up buying gold in order to hedge against the volatility in the markets.
The impact of 09/11
The following year, 2001 was a fateful year for the US economy. The terrorist attacks on the World Trade Centre permanently affected the American economy. The stock markets remained closed for four days at the time of the attacks, and when they re-opened, the Dow Jones average registered its largest plunge of all time – 684.71 points in a single day. Almost $1.4 trillion was lost in around a week and portfolios, pension funds and retirement funds were all eroded in one clean sweep.
These events created terror in the heart of investors and the period following the attacks saw the US dollar weakening, rise of government spending, fear of further terrorist attacks in the markets, as well as changes to the government’s fiscal and monetary policies. Government debt in the US skyrocketed during this period, as the country spent huge amounts to beef up homeland security and entered into expensive wars against Afghanistan and Iraq. At the end of that period, the US government debt stood at a staggering $14 trillion by 2011, further weakening the dollar. As a result, there was a huge exit of institutional, high net-worth and retail investors from the stocks and bond markets, as they all turned to gold for safety. The price of gold bullion shot up instantly, and so it was that from a spot price of $285 per troy ounce on September 11, 2001, prices reached $1,820 per ounce on September 11, 2011.
The fall of UK bank Northern Rock was one of the highlights of the 2008 crisis
The 2008 financial crisis and its impact on the next ten years
More bad news appeared on the horizon in 2008 as the US sub-prime mortgage crisis erupted, dragging in investors across Europe and the Americas. As the repackaged junk bonds failed to pay out, entire banks fell across the western world, including Lehman Brothers and Northern Rock. Yet again, investors turned to gold in order to insulate their investments against market uncertainty.
By 2012, gold prices had climbed to $1,664 per ounce, and investors who had moved to gold earlier on were enjoying good returns. However, the prices of gold fell by 28% in 2013 to $1204.50 per ounce while it should have continued to rise. During this period, other asset classes like real estate and equities rose quickly at double-digit rates. Although inflation was up, and typically gold is used as a hedge against inflation, gold prices continued to fall and there could be two interpretations for this phenomenon. The resurgence in real estate and equities saw some investors going back to these asset classes and pulling out of gold.
The other rationale could be that the paper gold market and Exchange Traded Funds (ETFs) continued to grow in leaps and bounds. In fact, the paper gold market is 92 times bigger than the physical gold market but does not translate into real purchases of gold. Each investor believes that the certificate he/she holds is backed by that many ounces of gold held by the issuer. However, the reality is that 92 other people have also been sold that same ounce of gold. So, while paper ETFs are on the rise, it does not translate into the same volume of gold demand. The current price of gold is $1,324 per ounce and once again, as the storm clouds of uncertainty loom ahead, investors are turning to gold.
Call us to discuss the right time for you to invest in gold
Our team of investment experts are best placed to discuss price trends in the gold market with you in accordance with your investment goals. Call us on 020 7060 9992 or get in touch online to talk to us.
Is the time right for gold and silver investing? It’s true that, at first glance, when looking at the historical price charts for gold and silver, they can look like a bit of a rollercoaster. This might lead you to believe that gold will never reach the dizzying heights it once did.
The price of gold reached its highest point in 2012 when it soared to a record high of £1,200 per ounce. The picture for silver investing is similar to current prices much lower than at its peak. This means the current levels of both metals offers great value. No-one should want to buy at or even close to the all-time high. Current prices for gold are around 20% better value than at its height, with silver an astonishing 60% cheaper.
You can view graphs illustrating past performance over various timescales, by clicking here. They make fascinating reading, though we would always stress that they should be considered in context and not in isolation.
2016 saw both the gold and silver prices record around 30% gains by year-end. And although it might not yet have reached the heights of 2012, gold enjoyed a continuous upwards trend, hitting a top point of £1,050 per ounce in July of that year. In Q1, The World Gold Council reported gold demand was up 21% to 1289.8 tonnes – the second strongest quarter on record. First-half gold demand was up 18% – the second strongest on record – with gold investment accounting for almost half of that demand.
Silver also went from strength to strength, reaching its highest price since January 2015. The US Federal Reserve’s decision not to change interest rates, together with no indication as to when they might raise them, encouraged people towards investing in gold and silver.
More subdued gains in 2017
Precious metals enthusiasts saw more modest gains the following year. Starting the year at £935/oz gold finished the year around 2.5% up at £960. During those two points, it spends 3 periods north of the £1,000 mark, peaking in September at £1,030. This coincided with a strong performance in the stock markets with the FTSE 100 rising 7.5% and the Dow Jones an incredible 24%. Generally, when stock markets perform so well, gold has the least interest and its price suffers the most. So it’s encouraging in the grand scheme of a balanced portfolio that gold still returned around the inflation rate during such a period.
What can we learn from that?
This demonstrates that while gold can act as portfolio insurance during economic downturns (usually appreciating by double digits), it still can act as a store of wealth in other years too. With cash deposits still paying well below the inflation rate in 2018, this simple achievement for gold shouldn’t be sniffed at. Essentially owning gold should be a long term strategy, as returns (and potential losses) can vary greatly from year to year. Trying to second guess the market and predict the performance is futile and relying on extreme luck at best. It’s always tempting to sell everything and only buy the investment that is performing the best at that time, in a hope to ride the gravy train. However, this strategy leaves you vulnerable to being hopelessly exposed to market corrections and change. Owning some gold along with stocks, bonds, cash and property, enables balance and more predictability.
….and silver? Has Bitcoin taken its mantle?
Silver experienced a poor year in 2017 with losses of around 3.5%. Some feel the price is being manipulated downwards by the huge banks which are looking to load up on the metal. If so, the price will inevitably bounce back with a vengeance when the banks want their holdings to increase in value. An alternative is that with stocks performing well under the new Trump administration and cryptocurrencies making millionaires seemingly overnight, silver simply hasn’t had a look in. Many have switched their attention from bullion to bitcoin. With the silver price so low and its huge potential for quick gains, it’s certainly been viewed as the exciting and go-to investment for those seeking significant price rises. With the likes of Bitcoin achieving this on a steroid level, the short term greed has switched all the attention away from silver.
The likes of Ripple, Ethereum and Bitcoin have enjoyed the attention of the publicast
Will silver regain its shine instead of Cryptocurrencies?
However, as we now know in 2018, cryptocurrencies are incredibly volatile, on the downside as well as the upside. For the novice investor whose head has been turned by tales of instant wealth, there are now almost as many stories of overnight bankruptcy caused by incredible price drops for bitcoin. This period (after their initial glamorous price growth) will likely sort the wheat from the chaff. Naive investors will perhaps start to reconsider the value of cryptos, deciding either that they’ve now missed the boat, or that the risk of complete loss is too great. For the more travelled investor, they already know that investing in cryptocurrencies is similar to betting red or black in the casino. There is simply nothing tangible behind their value, and while the blockchain technology has its merits and will no doubt perform a critical role in our futures, getting rich overnight from Bitcoin could be over.
For savvy investors seeking large gains, they’ll know that while silver and cryptos can be grouped as higher risk, higher gain asset classes, they are almost opposites. While the likes of Bitcoin may have no tangible or intrinsic value, silver is a physical precious metal. Its value can never fall to zero like Bitcoin and its value is backed by something tangible that not only can be used as currency but also has vast industrial uses especially in the technology sector. For this reason, the investors left standing after the inevitable Bitcoin massacre will no doubt seek out silver once again as the go-to sexy investment.
Current silver and gold value represent a great opportunity and potential
2018 has started in a rather dull fashion for precious metals. Prices are still around 20% below their historical peak, so it’s still a very good time to invest in both gold and silver. It just goes to underline that it’s a lucrative opportunity, with room for growth and the possibility of sharp spikes. As of March, returns for the year have been virtually flat for gold and 7% down for silver. Combined with last year’s silver price squeeze, it’s now looking like incredible value. It’s the ratio to gold, which averages 47:1 over the past century, now stands at a staggering 80:1. Surely silver investing offers vast upside potential.
Crucially, the influential factors which tend to increase the demand for precious metals, are still very much in place. Global markets continue to be unstable, rumours of another banking crisis persist and a housing market slowdown has already started. Combine this with heightened terror threats and rising demand from Central Banks for gold, and it’s easy to understand why the precious metals market still has plenty of wind in its sails.
History tells us that stock markets are overdue a nasty correction
The calm before the stock market storm
Stock markets have now enjoyed nearly a decade of
uninterrupted growth since the 2008 credit crisis. Recently the Dow Jones has received further boosts from the Trump administration. It’s tempting to leave as much money in stocks while they’re doing well as possible. Especially while precious metals are taking a breather. However, every market analyst will agree that a simple glance at historical performance will tell us that equity market bull runs cannot and do not continue forever. More pertinently, the most severe market crashes come after the longest a strongest bull runs, which inevitably fuel an inflating bubble. This is similar to the fact that San Francisco sits plumb on the San Andreas fault line. A glance at historical earthquakes will tell us that with the constant movement of the earth’s crust, further events are not only likely but guaranteed. It’s a case of when not if there will be another huge earthquake. Not only that, but when San Francisco is overdue a quake, just like the stock markets are now overdue a correction, then the expected magnitude of that impact is far greater.
Maybe I can simply leave all my cash in stocks and switch to gold when that happens?
The best policy is not to try and predict the future, as that’s just witchcraft! Instead, we should learn from the past and understand that just like the earth, the markets are constantly moving and predicting the moment of a big eruption is impossible. We’d suggest leaving money in stocks (even after they do fall dramatically as you won’t want to miss out on the recovery, however long that takes). However, we’d also insist on owning some physical gold and silver too. The most prudent strategy with timing when to buy precious metals is simply to buy now and wait. As long as you allocate a healthy percentage of your assets into the likes of gold, then you’ll be protected when the markets do crash. My little saying is that I’d rather own gold 6 months, or even 2 years before the market crash, than a day after. Because then it would be too late.
What else could push gold and silver up this year and next?
It’s not only the stock market which is vulnerable. There’s plenty of other elements in the mix which are either brushed under the carpet by authorities or simply under-estimated.
Interest rates and housing market
After an extended period of record low-interest rates
in most of the globe’s major economies, we’re now starting to emerge into a new phase. Base rates have already risen in the UK and are predicted to continue rising in 2018 from May onwards. Rates in the US have also been rising, at a slightly faster rate. Rhetoric from central banks is that increases will be modest. However, the huge danger is the impact even small increases could have on the average man in the street. In a period of incredibly low or even negative wage growth, one of the few areas that have papered over the cracks has been property. With house prices seemingly on an unstoppable journey to the stars, the property-obsessed UK public felt comfort knowing their prize asset was at least rising in value. With interest rates near to zero, borrowing has been super cheap. So most of us have re-mortgaged, unlocking vast fortunes to fuel either extravagant lifestyles, or at least pay for the bills during lean periods. This increased leverage now leaves us vulnerable to the very interest rate rises we’re seeing now. When the starting point is as low as its been (0.25%), it only takes modest base rate increases to have a huge impact on our monthly mortgage cost, especially when cushy fixed intro rate mortgages periods come to an end. Check out our investigation into the relationship between interest rates and the price of gold and silver.
…and the housing market has softened
Not only are our monthly mortgage costs increasing, but the value of our property has stopped rising, and started to fall. This is a consequence not only of the international market struggling, with wealthy Chinese and Russians previously fuelling UK price growth, but also over the swingeing tax increases brought in by the current Government which has increased stamp duty so dramatically. We expect that firstly, more house owners will fail to pay their mortgages as interest rates rise, leading to more downward pressure on house values. For those who do manage to survive as costs increase, they will have less disposable income (with wage predictions stagnant), which will impact the high street and service sector, further crimping stock markets. Higher interest rates also mean higher new borrowing costs, which deters investment in corporate growth. All this will put even more pressure on the already unaffordable rental market. It’s common to compare gold investment versus property, but both should play crucial roles in a balanced portfolio.
A consumer credit bubble is already at bursting point
UK consumer credit bubble
With the pressures of interest rate and mortgage rises, the public’s other debts will also come under pressure. Two particular concerns are the car market and credit card sectors. Both industries are enjoying record high borrowing. However, as lenders feel the squeeze from higher rates and more defaults, we’re likely to see stricter borrowing requirements and higher rate deals. A record number of UK borrowers are currently on zero per cent credit card deals which are likely to begin to reduce in availability. People will then struggle to refinance their debt at anywhere near the levels they’ve been used to. In the automotive industry, a growing trend has been for leasing cars. Whether on outright monthly lease deals or borrowing with a balloon payment at the end, many drivers will struggle to continue financing their car. Certainly, the hunger for new cars every 2 to 3 years will likely diminish.
The technological age is slowing crushing the high street
Early 2018 has brought with it fresh casualties of the ever-growing high street demise. Toys R Us and Maplin have both gone into administration, while seemingly popular food chains, Prezzo and Jamie’s Diners are closing a large number of restaurants. Perhaps this doesn’t come as a surprise. You could argue that Maplin has always been incongruous and never really had mass appeal. While kids love the experience of Toys R Us, adults who buy the games are now far more likely to order from Amazon and benefit from lower prices and next day delivery. Either way, this trend of weeding out the weak, however large the company, is likely to continue as the public turn their back on the high street and embrace online shopping. The frightening consequence is the sheer loss of long term jobs. Automation is filling the role of so many which will have a long term negative impact on an already growing population. Read our blog on the future of gold in a cashless society.
Brexit, Trump and Russia
There isn’t enough time to cover every simmering possible global issue which could push gold and silver prices skywards. But certainly, a handful of other significant issues would be the ongoing threat to the UK from Brexit. Whether this has a direct impact on our economy, a slower longer-term influence or is simply negative to Sterling, this is one which will stay on the radar for a while to come.
Donald Trump hasn’t blown up the world yet, but who knows about tomorrow! None of us would be shocked if he develops his trade war with China, instigates a war with the likes of North Korea, or simply makes some terrible domestic decisions in the world’s biggest economy. Either way, in today’s ultra globalised economy, foreign issues have more impact on the UK than ever.
The recent tensions between Russia and the UK after the poisoning accusations could be a storm in a teacup. However, the Government’s strong condemnation of Russia suggests there could be a hidden agenda. With Putin now flexing his muscles, I’d rather own gold right now to provide diversification, just in case this escalates (especially as Russia have been stockpiling gold aggressively themselves over the past few years).
Long term view for gold and silver investing
The value of gold and silver may be volatile, but owning them as part of a portfolio reduces your overall personal volatility. They tend to act as a balance to the traditional paper assets (like stocks and shares), so when those markets fall, physical gold and silver have historically risen. The motivation for many gold & silver investors aren’t necessarily to time the market perfectly; instead, it’s to take a long term view to provide balance and protection to their overall wealth. This way, exact timing isn’t important, as the long-term hold should outperform any short-term price drops and still deliver portfolio insurance.
So there’s no need to worry that gold prices might appear to plateau from time to time. You should consider investing in both gold and silver, which remain very worthwhile, solid, tangible investments.
Cost average to iron out volatility
If you’re still unsure and concerned about timing, then our ‘Monthly Saver’ enables you to purchase regularly. You can set up to automatically buy a small quantity of gold or silver every month. This means that if the price does decrease from one month to the next, it benefits you, as your next purchase would be at a lower rate.
Over time, you buy each month at the various underlying prices, therefore averaging out the cost of your precious metals. It’s a great way to get started in gold and silver investing.
The main message is that it’s necessary to take the long-term view. As with any investment, prices will go up and down, but as these graphs illustrate, the rewards can be well worth it. If you’d like to find out more about this type of investment, why not Download our free guide to investing in gold and silver. We maintain gold and silver are still very good value and worth their weight in, well… gold and silver!
Recent days have seen the gold price rise to 2-month highs as markets desperately seek a safe haven from mounting geopolitical tensions.
Be Prepared
Only a couple of weeks ago, the summer holidays were in full swing and the gold market settling into a slumber, ready to awaken for Autumn. However, in a matter of days, the market has sparked back into life. Initially moving up on the back of downgraded UK growth forecasts, then propelled further as gesturing from the Korean peninsula and President Trump reached new highs (or lows, depending on your view!). This is a classic example of how it’s never easy to anticipate such market events. Even in the depths of a summer slumber, the world can change overnight. This supports our notion that you should look to add gold to your portfolio ASAP as part of an overall balanced strategy, and then you’re prepared for any outcome. Reacting to a huge event by adding gold afterwards is usually too late.
North Korea Sanctions
In a response to North Korea’s nuclear weapons program, the UN Security Council passed a new series of sanctions on Pyongyang last weekend. This followed the latest intercontinental missile tests from Kim Jong Un. The idea behind the new tougher sanctions is to cut off up to a third of the country’s export business, strangulating the funding for the nuclear project. However, the nature of North Korea’s leader has meant previous sanctions have failed to bring North Korea to the negotiating table, and if anything has made them more determined to push ahead with the program. China and Russia, two major trade partners with North Korea have supported the new sanctions.
A War of Words
With President Trump now firmly in his new seat, his muscle-flexing is surpassing anyone’s expectations.
Trump’s bullish promise of releasing ‘fire and fury like the world has never seen’ if North Korea continue to threaten the US only provided encouragement for Kim Jong-un to retaliate. Recent US intelligence confirmed the regime had been successful in creating nuclear warheads small enough to fit into ballistic missiles. After denouncing Trump’s comments, North Korea revealed plans to fire missiles towards the US Pacific territory of Guam, where they have 6,000 service personnel at a base in the north as soon as the middle of August.
This threat has put the world on red alert. The US responded by warning this would spell the end of the current regime in North Korea, with US Defence Secretary Jim Mattis suggesting North Korea would be ‘grossly overmatched’ in any conflict.
Expectations
While most of us don’t want to contemplate financial affairs during the holiday season, it seems that macro events may well force our hand. Infact, we’ve seen more first time buyers this year than ever before as the realisation of a brave new world hits home.
As well as the political tensions in Korea, economic instability over the medium term seems likely to further support gold and undermine stocks. Coverage of Brexit has managed to push some of the real concerns under the radar. The Pound weakened last week when the UK’s Monetary Policy Committee announced lower growth forecasts and poor a wage outlook. Concerns increase about a growing debt bubble in the UK with car leasing debt at all-time highs and credit card debt coming under pressure from maturing zero-interest offers. With interest rates on the rise in the US, that may put pressure on others to follow. With rates at historical lows, it doesn’t take too much of a rise to increasing mortgage payments by a high percentage. This all combines with continental hardship which hasn’t recovered much from the financial crisis of the past decade, and recently we’ve seen both French and German banks requiring Government support.
All this uncertainty and instability could push the gold price higher, especially if the Pound comes under further pressure.
With UK coins being completely tax-free, buying Sovereigns and Britannias can act as a hedge against political and economic unrest. Adding gold bullion to your SIPP can provide balance and peace of mind to your long-term savings plans.
Falling Gold Price
With the French Presidential election imminent, political turmoil in the East, and a suggestion that the Federal Reserve is likely to increase interest rates, we are seeing an erratic slide, and drastically pessimistic view, on the price of gold over recent weeks.
The speculation of rises in rates alone, tend to have a negative effect on the price of gold, but the combination of the above factors have caused the metal’s price to drop so dramatically in the past two weeks, that many investors are questioning why this is. As a rule of thumb, economic instability and political turmoil has an inverse effect on the price of gold, as we usually see an increase in demand, and therefore an increase in the price. However, as Investing.com report; “that is not happening and Gold is having a rough day in the market today”.
With Gold prices currently trading at around £955 per ounce, compared to the mid-April price of £1033 (a decrease of approximately 7%), the question is whether the prices will rebound soon and is your physical gold investment safe?
To understand just what is happening and the possible longer-term effect on the gold price, we have to consider a number of geopolitical factors, including the French & UK elections.
Looking at the price of gold, there was a sharp overnight drop following the first round of the elections,
and a continuing decline since. The French Election first round results, and the potential outcome on May 7th, will certainly be having an impact on the metal’s pricing, but we must bear in mind that the price started to slide, prior to the results of the first round.
Opposing one another in the Elections, are Independent Emmanuel Macron and Front National leader Marine Le Pen. Both have withstood first-round elections and have created quite a bit of controversy among the French. This dissent is spilling out into the streets in the form of protests for and against both sides.
Early polls indicated Emmanuel Macron would comfortably beat Marine Le Pen, in the second round, but many are sceptical and have not forgotten the unexpected Brexit result in 2016 – meaning that nothing can be taken for granted. Some are saying that if Le Pen wins, then the EU would be facing its largest disaster to date, even overshadowing Brexit. This uncertainty, combined with many other pertinent political issues that are important to the future of the country, are affecting the economic outlook and contributing to the instability that is being encountered.
A year of Global political Change
As with any election year, geopolitical tensions can run high and have a significant effect on precious metals. 2016/17 will undoubtedly go down in history as the year Global politics fundamentally changed. With a growing anti-establishment sentiment, The FT.com has referred to it as a “year of political earthquakes”. Later in 2017 (September – October), Angela Merkel will be looking for a fourth term in office. However, she faces a huge electoral challenge as the anti-immigrant, anti-euro ‘Alternative for Germany’ aim to take advantage of her liberal views on immigration and her in-party problems. What, with Brexit, Trump and more recently, a call by Theresa May for a snap General Election in the UK in June; 2017 and beyond is certainly looking like it could continue to be a very difficult period in politics. Certainly, the past year has proven that any assumption of political outcome, is quite dangerous.
US Economics and the price of gold
Politics isn’t the only factor influencing the prices of physical gold. Economics, naturally, have a massive impact and can cause gold prices to rise or fall sharply, in a matter of minutes. Policy statements by the US Fed and the monthly jobs reports are major catalysts for growth or catastrophic blows.
The latest US Employment report is due out on Friday 5th May and many experts are predicting a robust recovery in the jobs market, meaning unemployment rates in the US are dropping. However, an increase in US labour figures, equals higher inflation rates, subsequently suggesting the Fed are likely to introduce higher interest rates in June. Analysts are predicting that this is very likely to happen. In fact, the probability of this was recently upgraded from 67% to 97%, with the Fed confirming that they remain confident in the US economy.
So, how does this usually affect the gold price? Gold is inversely correlated to the interest rate trends because higher interest rates mean people and businesses are hit with higher costs, causing earnings to fall and people having less disposable income. From a business perspective, this can negatively affect the growth of a company and results in falling stock prices. Usually, declines in equities mean the price of gold increases, however, what we’re seeing at the moment, is a combination of factors, creating an unusual pattern.
Equity Market Bubble (but is it about to burst?)
Incredibly, the markets have been rising for a number of months now, with some European Equity Markets at record highs. This is causing some concern amongst the experts, with the belief that the markets are in dangerously high territory. So much so that many are warning of a stock market ‘bubble’, which could catastrophically burst at any time.
And although not quite agreeing with the term “bubble” even the experts at Seekingalpha.com certainly agree that stocks are currently overvalued.
A strengthening pound
The pound has gone from strength to strength since Theresa May signalled her desire for a UK General Election on June 8th. We have seen the pound massively benefit from optimism over the result of that election; infact, it hit a six-month high following the announcement, with a four percent gain against the US Dollar. Even if the underlying gold price remains unchanged, an appreciating Pound will push the value of gold down in the UK – which is what we’ve seen since the snap election announcement.
What can we expect of gold in the coming months?
One major factor in June, that will determine the gold price, will be the Fed’s decision on interest rates. If the rates rise, as predicted, this will undoubtedly impact the current stock market ‘bubble’ and indeed may be the catalyst for gold’s recovery – especially if the dollar also rallies.
Buy Gold whilst prices are low
Daniel Fisher at Physical Gold says “For many investment professionals, Gold is the investment of choice during geopolitical and economic turmoil and savvy investors take advantage of these lower prices, buying gold in bulk to add balance and diversification to their portfolios”. If, as an investor, you’re thinking of starting your own gold nest egg, then you should take advantage of today’s prices and simply ensure you buy at the best price you can find.
What drives the price of gold? While many people think that the jewellery industry is in charge of how gold is priced and why the value of gold increases or decreases depending on the time of year, there are actually many factors attributed to this. With gold being highly sought after by the jewellery, medical and technology industries, where does that leave investors? Do gold investors have a part in the price of gold? What factors really drive the price of this precious metal? Let’s take a closer look at the many factors driving the price of gold in today’s markets.
Central Bank Reserves
Many of the world’s nations have reserves that are composed primarily of gold and their central banks hold paper currencies and gold in reserve. When these central banks begin buying more gold than they are selling, the price of gold rises.
The price of gold is inversely related to the value of the U.S. dollar. When the dollar is strong, the price of gold decreases, and when the dollar is weak, the price of gold increases. The reason for this is that people invest and trade in dollars when the dollar is strong, and when the dollar is weak, they prefer to invest in gold either through gold funds or physical gold.
Jewellery and Industrial Demand
The price of gold is affected by the basic theory of supply and demand. When the demand for consumer
goods such as electronics, medical devices and jewellery increase, so will the cost of gold. With India, China and the United States being the largest consumers of gold for jewellery in terms of volume, the security of a gold investment is even more evident.
Wealth Protection
When an economy goes into a recession, people turn to gold investments due to its lasting value. Gold is often used as a hedge against currency devaluation, inflation or deflation and its price will increase when the expected or actual returns on bonds, equities and real estate fall.
Gold Production
The top gold producing countries in the world are China, South Africa, the United States, Australia, the Russian Federation and Peru. Gold production affects the price of gold and with gold mine production increasing by about three percent annually, gold prices should remain stable for quite some time. Another factor that arises from the mining of gold is that all of the “easy gold” is already mined and now gold mining companies must take extra precautions when mining the precious metal. These extra steps cost more money and this increase in the cost of gold mine production results in rising gold prices.
If the thought of a dependable investment that offers stability and an excellent return on your investment appeals to you, contact Physical Gold today and let one of our investment professionals assist you and answer any questions you might have about investing in physical gold.
Gold Information
Live Gold Spot Price in Sterling.
Gold is one of the densest of all metals. It is a good conductor of heat and electricity. It is also soft and the most malleable and ductile of the elements; an ounce (31.1 grams; gold is weighed in troy ounces) can be beaten out to 187 square feet (about 17 square metres) in extremely thin sheets called gold leaf.
Silver Information
Live Silver Spot Price in Sterling.
Silver (Ag), chemical element, a white lustrous metal valued for its decorative beauty and electrical conductivity. Silver is located in Group 11 (Ib) and Period 5 of the periodic table, between copper (Period 4) and gold (Period 6), and its physical and chemical properties are intermediate between those two metals.
The terrorist attacks on the World Trade Centre permanently affected the American economy. The stock markets remained closed for four days at the time of the attacks, and when they re-opened, the Dow Jones average registered its largest plunge of all time – 684.71 points in a single day. Almost $1.4 trillion was lost in around a week and portfolios, pension funds and retirement funds were all eroded in one clean sweep.
