Posted by on October 12, 2016 9:00 pm
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Categories: British Pound Budget Deficit Deutsche Bank Economy Gilts Krugman Morgan Stanley Nikkei Reuters Ron Paul

Gold in GBP has risen another 3.5% in the last 3 trading days as the British pound continues to be “pounded” on international markets. Gold in GBP terms is now 43% higher year to date and has risen from £716/oz on January 1st to £1024/oz today.

Sterling is now the worst performing major currency in 2016 and gold the best.

sterling_gold_brexitGold in GBP (10 Years)

The pound has completed its worst four day performance since Brexit and the pound remains considerably weaker versus the dollar, euro and gold since the Conservative Party conference, when Theresa May promised to trigger article 50 within six months.

Heavy losses sent sterling down by another 2 per cent yesterday to below $1.21 against the dollar, while against the euro, the pound fell below €1.10.

The pound has bounced back a little today but market participants are increasingly alarmed at the political prospect of a severe rupture between the UK and EU. All the focus has been on the real risks posed by a “Hard Brexit” but another major risk is being greatly underestimated. There is also the significant risk posed by the very poor financial situation that the UK finds itself in – with its massive twin deficits.

HSBC’s respected currency analyst David Bloom warned in a note:

“the question we have asked hundreds of investors throughout the world is do you want to buy a currency that has massive twin deficits with an unknown political direction and for that risk you can get zero rates?”

UK gilts have come under selling pressure in recent days and the yield on the 10 year is now at 1.03%.

The UK current account and budget deficits combined are around 10% of UK GDP. The UK budget shortfall was 33.8 billion pounds ($44 billion) in the first five months of the 2016-17 fiscal year. The UK budget deficit for August alone was £10.5 billion, higher than economists forecast.

Kit Juckes at Societe Generale in London warns that the demise of the UK currency could soon start impacting a broader range of assets:

“Press comment is now shifting to embracing the positive effects of a weak Pound and in due course that’ll be true but any further weakness from here might simply reflect loss of confidence and be bad for UK assets (gilts, equities, house prices, you name it…) in general.

“The market’s very short, but if Sterling weakness starts to feed weakness across assets, we will have all the conditions for a classic overshoot to start.”

Currency analysts expect sterling to fall a lot further which underlines the value of owning gold, both against local currency depreciation and also the loss of value of UK assets denominated in sterling.

HSBC is forecasting GBP—USD at 1.20 by year end and 1.10 by end 2017, taking EUR–GBP to parity. Morgan Stanley is targeting 1.24 in USD and 0.92 for EUR—GBP “relatively soon.”

Sterling dived 10% against US dollar in seconds last Friday night but the trade was later cancelled. Despite the cancelling of the allegedly “rogue trade”, a “flash crash” of 6% was still registered.

With this hugely volatile and uncertain backdrop, allied to the uncertain global geo-political and economic outlook, we are confident that gold in GBP terms will reach new nominal highs over £1,200/oz in the coming months, from £1,024/oz today (see chart above). It remains an important diversification and hedge for UK investors, savers and pension owners.

Gold and Silver Bullion – News and Commentary

Political Risks Roil Currency Market, Pummeling U.K. Pound (Bloomberg)

Nikkei drops on weak Wall St; investors risk-averse as sterling off session high (Reuters)

Gold fix banks will have to reveal correspondence for antitrust lawsuit (Financial Post)

Gold steady on easing dollar; Fed minutes in focus (Reuters)

Gold prices gain slightly in Asia as Fed minutes eyed (

No Love For Gold (Forbes)

Now may be the right the time to invest in gold (CNBC)

Gold Fix – Scotiabank Ordered to Produce Internal documents (Market Slant)

Productivity, Microchips, and War (Mauldine Economics)

This Will Unfold Slowly… Until the Day it Doesn’t (Future Money Trends )

Gold Prices (LBMA AM)

12Oct: USD 1,255.70, GBP 1,024.53 & EUR 1,139.05 per ounce
11Oct: USD 1,256.40, GBP 1,021.58 & EUR 1,130.76 per ounce
10Oct: USD 1,262.10, GBP 1,016.62 & EUR 1,129.71 per ounce
07Oct: USD 1,255.00, GBP 1,012.91 & EUR 1,127.62 per ounce
06Oct: USD 1,265.50, GBP 994.30 & EUR 1,131.23 per ounce
05Oct: USD 1,274.00, GBP 1,001.11 & EUR 1,134.37 per ounce
04Oct: USD 1,309.15, GBP 1,026.90 & EUR 1,172.21 per ounce

Silver Prices (LBMA)

12Oct: USD 17.44, GBP 14.23 & EUR 15.83 per ounce
11Oct: USD 17.48, GBP 14.26 & EUR 15.78 per ounce
10Oct: USD 17.78, GBP 14.31 & EUR 15.92 per ounce
07Oct: USD 17.33, GBP 14.01 & EUR 15.55 per ounce
06Oct: USD 17.76, GBP 13.98 & EUR 15.88 per ounce
05Oct: USD 17.80, GBP 13.99 & EUR 15.86 per ounce
04Oct: USD 18.74, GBP 14.68 & EUR 16.78 per ounce

Recent Market Updates

– Ron Paul Says “Gold Going Up” Whether Trump Or Clinton Elected
– Currency Shock Sees Sterling Gold Surges 5% In One Minute “Flash Crash”
– Top Gold Forecaster: “As Quickly As Gold Fell” May “Rally Back” on Global Risks
– Gold Buying ‘Opportunity’ After Surprise 3.4% Drop
– Deutsche Bank “Is Probably Insolvent”
– GBP Gold Rises 1.3% as Sterling Slumps On ‘Hard Brexit’ Concerns, Up 36% YTD
– Why Krugman, Roubini, Rogoff And Buffett Hate Gold
– ECB Refused “To Answer Questions” – Deutsche Bank “Systemic Threat” Is “Not ECB Fault”
– Euro “Might Start To Unravel” If Collapse Of Deutsche Bank
– Do You Really Own Your Gold?
– “Gold Will Likely Soar To A Record Within Five Years”
– Savings Guarantee? U.N. Warns Next Financial Crisis Imminent
– Gold Up 1.5%, Silver Surges 3% – Yellen Stays Ultra Loose At 0.25%

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