Category Archive: ATS Articles
Well I think it is probably safe to start this article by saying, thank goodness 2016 is over! That was quite the year. We had the tumultuous events of Brexit, the rise of soon-to-be President Donald Trump, another Star Wars was released (I’m making no parallels between the Rise of Darth Vader and aforementioned Mr President) and a whole host of celebrity deaths. It left us all quite tuckered out by the end of the year. It seemed to be a never-ending feast of news with everyday bringing something else. Thank god that is over. So what has happened to the gold price and what is the gold forecast for what’s happening in 2017.
What did we learn from 2016
The first Gold Fix of 2016 was on the 4th January at £725.019, $1072.70, €982.299 respectively, with the final fix of the year published at £942.580, $1159.10, €1098.360. The Gold Price across the year moved £217.561 (+30%), $86.4 (+8.05%), €116.061 (+11.81%). The gold range in sterling was £335.06, in dollars it was $297.30 and in euros €257.414. The dollar and euro price is fairly consistent with a difference of 27% and 26% of fluctuation, whilst in sterling it is a whopping 46% movement – which is a tremendous amount of swing.
Without being Milton Friedman, it is fairly easy to point towards currency as being one of the destabilising factors for the gold price in 2016. For Sterling of course this is down to Brexit, I don’t think we need to look much further than that. But for the sake of all of you wanting more stats: the sterling price against the dollar started the year at 1.46 and ended at 1.23 – a loss of 18.69% which was well documented as a 31 year low. The combination of Brexit and FED rates rises put a lot of downward pressure on Sterling. The gold price benefited and performed very well throughout the year with it being listed as the best performing asset class after the first quarter. The gold price continued riding the uplift until just after the presidential election and has since had a moderate retraction.
Gold Forecast 2017: The Year Ahead
In the past I’ve written a huge block of my predictions for the year ahead. After reviewing my last years auguries; I must confess I was reasonably pleased with it – I’m going to write it slightly differently this year. Stay with it.
Before we look any further, we have to be looking at America. Trump’s election victory has so far been taken as fairly positive in the markets, with the indices posting strong results. Trump’s business background and promises of de-regulation in the banking industry and the repatriation of offshore cash, seemingly are buoying investor confidence. Ford have already taken heed and scrapped their plan for a $1.6 billion dollar manufacturing plant to be built outside the US (across the border in Mexico). The markets at least have so far been in favour of his appointment.
The other aspect of the US we have to look out for is the Federal Bank raising interest rates. The FED have expressed a desire to continue to raise rates in 2017 with three rates rises being touted. Janet Yellen stated the rates rise were a “reflection of the confidence we have in the progress the economy has made and our judgment that that progress will continue”. Naturally as we have the incremental interest rates rise, we will see a retraction in the equities markets as investors begin to shift monies back to high interest cash accounts. In all, a lot of this economic year is going to sit on how the Trump Presidency is going to pan out. Optimism may well give way to a year of underwhelming events, but if one thing is for sure, Trump at the very least talks first and thinks later – a recipe for unpredictability.
Over the last year, I almost began to forget that China existed. With all the headlines being dominated by Brexit and then subsequently Trump, I can’t actually remember anything about China from the last year. The bubble associated with China, although thought to be about to burst last year, didn’t. China grew approximately between 6-6.5% depending on what statistics you read. That was primarily due to the commodity drive last year. An economy strongly reliant on commodities saw Chinese manufacturing recovering from a four year deflation helped by a slight fall in the Yuan. The constant strengthening of the dollar comes with its benefits but also with its negatives.
This year I think we need to focus attention a bit more on China and watch out for that bubble. With China seeking to obtain another year of 6.5% growth, at some point they will come unstuck. They have a huge increase in the middle class and over the last couple of years a shift towards a more service based economy to help head off any seismic problems with manufacturing. These factors combined with any slow-down in commodities, China’s ever growing debt, it will come to a head – the question is when. With the Chinese, it is likely they’ll more likely hit stagnation than a complete collapse. It is a machine well-oiled and the leadership know how to control it sufficiently. It will be the BRIC countries such as Brazil and India who will be more greatly effected.
UK and Brexit
Sadly for you the reader and me the writer, Brexit is going to dominate our headlines for a while (I pretty much refused to write anymore about Brexit last year). As of writing this we are allegedly set to be triggering article 50 in March this year with us potentially leaving in 2019. Let me put this supposition to you: – with the resignation of Sir Ivan Rogers, deemed one of the UK’s most experienced EU ambassadors, with Rogers himself calling the line of argument put forward to him as “muddled”, it doesn’t bode well. The government have now appointed Sir Tim Barrow, a well-seasoned negotiator, it only makes me feel things are going to get entrenched. I happen to echo Sir Ivan Rogers’ belief that our exit is going to be a long drawn out affair. I think this will have an effect on sterling. A failure to trigger article 50 will send the wrong messages to the markets and will probably delay an interest rates rise in the UK. If they do trigger it, it will likely settle currency down but it won’t last if negotiations stall in the mid to long term. Any hesitation will cause a currency wobble and we will hear the same sort of fear-mongering about companies relocating – which may well happen if we flounder.
Gold Forecast 2017
So as you can probably tell, there are a hell of a lot of variables that will play on the gold price in 2017. Last year it was fairly easy to predict that the dollar would strengthen. This year it isn’t at all clear cut. On the face of it, the dollar looks to have another strong year, this will put downward pressure on the price. Sterling will be dependent on negotiations with the EU and whether the Bank of England will raise interest rates, which they will likely have to do at least once in 2017. This may mean a resistant gold price in sterling. Ultimately, I think the gold price will have some significant pressure but it isn’t going to take much for an uplift in the price. Given the lack of belief in the financial institutions, the Brexit Saga and the new President, I think 2017 is going to be a tinderbox – let’s hope Mr President doesn’t bring that torch.
Thanks for reading this year’s gold forecast! Remember this article is to be used as an article and should not be used as investment advice. Please seek professional investment advice before investing.
What made the gold price drop this week?
What I love about my job is knowing that in a blink of an eye, the gold price can completely change. Like all things if you are unprepared it can catch you completely off guard and as a bullion dealer you begin eating losses. On the flip-side the price can soar and everything we bought yesterday can suddenly be worth exponentially more. That I suppose is the fun of it. As my CEO always says to me, “we live and die by our decisions” and like most things in life that is fundamentally true. It is about being pragmatic and knowing when to turn a profit and not trying to play the market – that is when you can get caught and badly. As with gold’s volatility and most of life’s circumstances we are faced with, there is a chain of causation. Sometimes the action and result cannot be pinned down to one set of reasons. Unlike a legal arena where causation isn’t necessarily sufficient to create a legal liability, the gold price and most specifically being caught on the wrong side when price collapses, will goad you into thinking you should have known better and “why didn’t I wait to buy” but the reality is, to pin a cause to the result of a gold price drop is not always an easy judgement.
The Gold Price Drop Analysed
On Monday the LBMA AM Fix was £860.886/$1250.40/€1115.840 and yesterday’s PM Fix was £829.520/$1220.60/€1094.769 – in sterling that is a drop of 3.64% in four days. Currencies likewise GBP to USD opened on Monday at 1.4497 and closed yesterday at 1.4704 – in sterling a rise of 1.43%. Sterling is now sitting at it’s highest since early Jan this year.
Typically when sterling increases against the dollar, the gold price moves lower here due to the conversion from the gold price in dollars to the pound. The dollar price has been strengthening this year which I have mentioned previously in my 2016 Gold Forecast at the start of this year. Solidifying the dollar has been on the FED’s agenda from last year and inevitably it will continue. Despite this week where it has softened for sterling, USD against CNY (Chinese Yuan Renminbi) has strengthened considerably and is back up to the strength we saw in February. I wouldn’t be at all surprised if the March on Beijing/Hong Kong (economically) continues especially after announcements that the FED are looking for further interest rates rise – possibly in June.
Having said all that, a large Chinese ICBC Standard bank have just bought a vault in London from Barclays, that can hold up to 2,000 metric tons of gold, silver, platinum or palladium. Furthermore, the Chinese Central Bank are also heavily topping up their own reserves and will likely continue doing so. As has always been the case, gold is always part of the bigger picture, it may well lose skirmishes along the way but in the long term, the causation of currency volatility and recessionary cycles, will mean that gold as always will be the haven that investors and the prepared turn to.
Article by Michael Cooper
Brexit: What will happen to the Gold Price if the UK leave Europe?
Several years ago, I reluctantly remember I hasten to add, glumly staring down at a heavy EU Constitutional law book with an image of a faded blue Brussels and a rippling EU Flag. EU law was one of my least favourite lectures of my law degree. It was filled with pages of bureaucracy, everything minutely documented in giant statutes. The only moderately interesting aspect was in the first and second lecture to do with the evolution of the EU and subsequent aspects of Human Rights. Other than those pockets of interest, those four hours every Thursday for a year was eye-poppingly boring. It was probably one of the sole reasons I didn’t pursue a career in law. Despite this damning account of EU law that I’m certain every student-lawyer lives through at some point (if it’s not EU Law, it’ll be Equity and Trusts, or perhaps Land Law – the woes of a law student), I still haven’t quite picked a camp yet. With Brexit it really is a case of: Do we stay with the devil we know? Or do we take this opportunity and venture out alone? – I’m none the wiser.
What is Brexit and are we likely to leave?
On the 23rd June, we will be voting to stay in the EU or we will be voting to leave it. I haven’t looked at many polls but from speaking with clients and friends alike, it is rather split and it isn’t easy to tell who picks what. The FT have a Brexit poll running which currently has 46% Stay and 43% leave with a margin of undecided voters in the middle. Whatever the outcome is, the sentiment to the run up is going to be one of uncertainty. For Business leaders and those in management trying to plan ahead, uncertainty is a devil and contingency planning is going to be robust for Brexit.
What will happen to the Gold price?
As the Bank of England warned yesterday, an exit from the EU carries with it the likelihood of a recession. With the fear/jubilation of Brexit mounting as we get closer, it is likely the markets will respond according to the polls and sentiment. The sterling currency is likely to be weakened/strengthened depending on what the polls are reporting. My guess is the polls are only going to be move by two or three basis points in either direction. I don’t think there is going to be much science involved. With that in mind, the pound will probably weaken, something that has already begun to be factored in. If we leave the EU altogether, Sterling may well fall considerably.
In this event, the gold price in sterling will potentially go higher. Usually in this instance, when sterling falls against the dollar, the gold price moves up for us as the gold price is set in dollars. I wouldn’t be surprised if to counter this, the gold market will be buoyant up until the vote. We’re already having people ask us for Kilo Bars and hundreds of Krugerrands in preparation.
Verdict: Brexit is hovering and its uncertainty is beginning to be felt in the markets. Currency has already begun to feel downward pressures. The Bank of England have also given a sharp warning that in the even of a Brexit we will likely fall back into recession. Bank of England Growth Forecast has been revised down to 2% which reflect this sentiment. In times of uncertainty as with 2007 & 2008, to remain with strong purchasing powers and to stablise their capital, investors flooded into gold. I call it the “law of the yellow metal” and Britain for the next few months is in the Dock.
Article by Michael Cooper
Gold: Why Diversify Your Wealth?
I was sitting on my train this morning and I heard three separate banal idle commuter conversations all about the same topic. It actually made me laugh. Which topic of conversation do Brits love to talk about the most? The Weather. I’ve actually just come back from Lisbon where the weather ranged between 20 and 25 degrees, so I suppose I was catching up on the weather news I so longingly missed. By the sounds of things it has been sunny, clear, rainy and snowy. Typical good old British weather. Leave the house in the morning in a rain jacket, only to find the weather turns surprisingly warm by the afternoon and before you know it in the evening, you’ve got sleet. As a Brit you have to prepare for all eventualities and diversify accordingly.
This leads me to my next point. Whilst in Lisbon, I was chatting to a chap who works for himself in apparently one of the recovering industries in Portugal’s economy – Tourism. In 2015, Portugal’s GDP was €179,410 billion with tourism providing 6.4% of GDP, approximately €11,482 billion. He told me that everything was in the pan apart from Tourism. I’m not sure that is strictly true after doing a bit of research on Portugal’s GDP share per sector – but I guess it is a visibly noticeable improvement – more people and more coaches in the capital Lisbon. This will of course result in more bars and restaurants opening and cabs/tuk tuks and the like will see more footfall and punters. The hope for Portugal is that tourism really takes off over the next few years and increases to help bolster it’s share of the overall GDP. A risky strategy with no guaranteed returns.
After having a chat with this chap and reading more about economics in a copy of National Geographic, it made me think. Over-reliance in one type of industry/sector/monetary policy in the case of the Federal Reserve (FED), is risky. It only takes a slight adjustment made outside of your realm of control and you will be facing a problem. Currently I feel that there is an overexposure present in the global economy of all/nearly all eggs in one basket. The strength of the dollar combined with over-indulgently awaiting news and analysis preceding Federal Open Market Committee (FOMC) announcements, is creating too many ripples. It is the same in Europe and the European Central Bank (ECB) so it isn’t just North America, but the reality is the US is the strongest economy. In my opinion it is the lack of diversity in Monetary Policy (and the systemic problems in the banking industry) that filters down through the rest of the economy, which ultimately means that equities and currency will be manipulated and targeted, just as FOMC do for the dollar.
The Bank of Japan (BoJ) announced yesterday something quite “unexpected” – to vote to keep monetary policy in negative territory and not to relax the current policy. Why anyone thought this was unexpected I’m not sure: 1) BoJ took the initiative originally to aggressively set a negative interest rate 2) Japan have been losing ground in the currency war between the US, the result of this decision means they will capture more ground on the dollar 3) Weak data about the US has already flown round the news so it is no surprise Japan want to capitalise on that through arbitrage 4) They like the US will want to keep parity with China who are buying the alternative asset: gold. What the BoJ have done is in essence prove a point. Do not expect the expected. Economics is interesting because of patterns and algorithms, but it is also interesting because of mercurial swift change and corrections.
I guess the moral of this story is this: diversify and prepare. The idea of buying gold now is more important than ever. If you don’t prepare and take that initiative to diversify and pack your rain jacket in the morning, you may well get drowned by the monsoon in the evening. Thankfully Portugal has sunny weather… mostly.
Article by Michael Cooper
April the 1st: Fool’s Gold – Why Gold hasn’t lost it’s Lustre
I can hear a deep sigh as you begin to read this article. Yes, it is April the 1st again. Be prepared for the usual idiots bellowing April Fool’s whilst smashing you in the face with a custard pie (metaphoric of course, hopefully not actual pie). Geoffrey Chaucer first mentioned April Fool’s in the Canterbury Tales and incredibly it is still something we, albeit rather begrudgingly, still recognise today. So far I haven’t had anything played on me just yet, although reading Janet Yellen’s Federal Reserve statements you would be forgiven if you had succumbed to some form of regretful April Fool’s feeling. I will get onto that in a minute. We in the office have been discussing our best April Fool’s jokes and pranks and if you are so inclined here is the Guardian’s Best April Fool Jokes. I think the best April Fool jokes for me have always been the subtle ones, the old spider in the cereal bowl or as my brother did to me, the old classic: gin instead of tap water in my glass at 8.30 in the morning. I could of course riddle this article with pyrite – fool’s gold references but I will refrain.
Fool’s Gold: Why Gold has been the best asset class this year
So far this year the biggest gag running is the Interest Rates Rise. In fact it is such a successful gag it has been running for the last couple of years. I just can’t believe no one has picked up on that or ran an article on that basis, cue my article’s meteoric rise on the NY Times. For a while there was a time when the joke was almost genuinely believed and that there might be multiple interest rates rises this year. Even up until a week ago, Yellen was still using Hawkish language in her statements. Yes Employment has been steadily getting better and yes the dollar is flexing its muscles against other currencies, but as will likely happen and I have been stating for some time, the more they pull away from the pack the more isolated their economy will become. The gradual decline of China, Brazil and the overtly weak oil price is going to take its toll on the US economy. This week Yellen has engendered her recent address in New York with dovish sentiment, citing China specifically as reason to be cautious about rates rise. Given this information it would be surprising if another rise will occur in the short term. This recession is not like the ones that have gone before and where monetary policy once could self-right a country, in a modern globalised world, ripples are felt quickly and with venom. With this in mind this is why I think Gold has benefited and will continue to do so in the next couple of years. As much as it has been knocked about with over confidence in the equities markets, Gold is no fool. It will continue to maintain purchasing power and its gravitas as a safe-haven will continue, of that I have no doubts.
I’ll leave you today with an old classic from the seventeenth century, a simple gag called “the Washing of the Lions”. In 1698 the news pamphlet “Dawks’ News-Letter”, wrote a report about several people being “sent to the tower ditch to see the Lions Washed”, the joke being there were noLions. For almost a century afterwards it was common place to send unsuspecting and gullible fools to the Tower of London to watch the Annual Ceremony of the washing of the Lions. The picture featured is a genuine invitation devised by the Senior Warden of the Tower of London in 1856, to convince some unsuspecting fools in the partaking of “the Washing of the Lions”. I might just try this.
Article by Michael Cooper
March 2016 Budget: Lucky Number Eight for Osborne?
It is that time again – and fever sweeps across the nation! Maybe a slight exaggeration but those of you with a penchant for economics combined with politics, it is a day to note down in your ledger. This is George Osborne’s eighth Budget and I am curious to see where the axe will fall this time. Likewise, Osborne is not without his surprises as we have seen in previous budgets.
So without further ado, here is the March 2016 Budget:
The Chancellor set out this March 2016 Budget stating that the UK economy was “set to be the fastest growing economy in the world” and prefaced the budget stating that the “UK was not immune” to booms and bust. This budget was certainly engendered with a long term viewpoint, discussing statistics and the economic storm clouds that are hovering. Mr Osborne discussed his long term view that the UK was looking to stabilise and position itself as a leading economy. The Chancellor stressed the future instability and the need to plan appropriately to cement the UK’s ability to handle an increasingly difficult global economic outlook. He also went on to thank the British public for its hard work and for supporting his previous budgets.
UK Economic Growth Forecast Revised Down
The Office for Budget Responsibility (OBR) has downgraded its forecast of UK economic growth in 2015 from 2.4% to 2.2%.
The OBR have also revised the forecast for the following years: from 2.4% to 2% (2016), from 2.5% to 2.2% (2017), from 2.4% to 2.1% (2018) and from 2.3% to 2.1% formerly in 2019 and latterly 2020.
The OBR inflation forecast was 0.7% this year and 1.6% next year.
Fundamental Reform of the Business Tax System – A simpler system
Clamp down on foreign businesses avoiding tax
Reduction in Corporation Tax – by April 2020 it will be 17%
Business Rates Cut – From April 2017 – Small Businesses to pay no rates
Tax Cut on Supplementary Charge for Oil & Gas from 20% to 10%
Sugar Levy on the Soft Drinks industry to be introduced in 2018 – 520 million pounds is estimated to be raised
Capital Gains Tax to be cut from 28% & to 20% for Higher Earners and from 18% to 10% for Basic Earners
Tax Free Allowance – will rise to £11,500 in April 2017
Higher Rates Allowance – will rise to £45,000 in April 2017
Pension & Savings
“Pensions too complex and inflexible” – Osborne
Lifetime ISA – for anyone under the age of 40 – £4,000 bracket per year and the government will put in £1,000
ISA Limit to be raised to £20,000 in April 2017
‘Radical’ devolution of power to Councils and Communities
More Mayors for areas in the UK – West Midlands will be able to vote for one in the next year
Local Councils will raise their own money and 100% of the money raised will be spent in that council
“The Devolution Revolution is taking hold” – Osborne
Transport: – Stronger links for the UK and Northern England especially
HS3 gets the Green Light
New tunnel road for Manchester to Sheffield
A66 & A69 Upgrades for the North Pennines
Crossrail 2 also to get the Green Light
Housing: Zone housing development to make houses ready for 5G connectivity
Schools to become Academies
Northern England to be focused
Maths to be taught to 18 – (my old Maths teacher would be distraught)
Alcohol and Fuel Duties
Fuel Duty to be frozen for the sixth year in a row – a saving of £75 per average driver and £250 for small businesses
Freezing Beer Duty and Cider Duty yet again
The Chancellor closed his Budget by stating “I commend a budget that puts the next generation first”.
*Apologies for any errors – I am amending as the Budget is being announced*
Article by Michael Cooper
Negative Interest Rates: How will they affect the Gold Price?
Negative Interest rates are now commonplace; just the wording makes me suspicious. The word negative never makes one feel comfortable. Is this the right policy, what are Negative Interest Rates and should we be worried?
Yesterday was the latest announcement from the European Central Bank (ECB), which outlined a further cut to negative interest rate territory. The fixed rate lending has been cut from 0.05% to 0% and the deposit facility, used by the banks for holding money overnight with the central bank, has been cut from -0.3% to -0.4%.
What are Negative Interest Rates?
In effect negative interest rates mean that the banks are being charged to hold money on deposit. In times of deflation, businesses and banks tend to stockpile cash for the leaner times, by invoking a negative interest rate, the logic is that the banks are going to want to lower their positions on cash being held dormant, as it is now costing them to hold it. A negative interest rate therefore looks to incentivise the banking industry into offloading some of their deposits through lending – this will of course help to stimulate the economy and the all-important inflation numbers (which in the last year for the ECB have been woeful).
That is the dream scenario of course, whether that will be reality we will have to wait and see.
How will Negative Interest Rates affect the Gold Price?
In answering this, I think you firstly have to look at currencies. What is likely to happen in the mid to long term? After the ECB announcement yesterday, the Euro rather surprisingly strengthened against the dollar. This I would imagine is the investors’ response in support of Mario Draghi trying to boost the Eurozone. Realistically however, the last cut of -0.3% hasn’t done the trick so by increasing it -0.4% will it make any difference? My guess would be that the banks will accept the deeper cut, sure it means they have spent a little more but presumably they decided keeping the cash in the bank was safer than lending it out despite having to pay for the privilege. I think there is certainly the argument that even if the negative rates are punitive on banks, at the moment they aren’t lending as they can’t see the profitability in doing so, which actually speaks volumes about the kind of mess the global economy actually is in.
So with that in mind, gold is probably going to fall mercy to an increasing dollar but ultimately I think the message of negative interest rates is going to knock investor confidence in the mid to long term. Gold may sit slightly lower whilst the dollar creeps up but it is no surprise to me that central banks are beginning to stockpile the yellow metal as of 2015. China and Russia have been most active in buying gold which makes me think that they are aware of further economic problems ahead. I’m still keeping my eyes and ears open as I’m convinced there is more unsettling news to come from China.
Verdict:- Negative Interest Rates are in truth are a bit of a stab in the dark. I look at the banks being charged like I would buying a plane ticket on a budget airline. The airline offers a business class seat, which basically means you have fractionally more legroom. We are all going to get to the same destination yet some people feel the need to pay double or triple the normal fare to have something only fractionally better. Why? The extra cost is irrelevant. It means nothing to them because they would rather have the knowledge that they are having a marginally better journey than the other chumps at the back of the plane. Banks no doubt feel the same. Yes they are being charged to have their money safe, yes it seems ludicrous to accept the charge but it isn’t going to incentivise them to shift it. They would rather have the knowledge that it is probably better to hold it with the central bank than lend it out. It is less costly and it is less risky. Much like our the global economy, “Flying is hours of boredom, punctuated by moments of stark terror” – I think investors are in for some turbulence.
Article by Michael Cooper
Gold is Top Trump
A year or so ago I couldn’t have called it. I might have had the quandary at the back of my mind but now it seems more and more likely: Trump is going to be the next Republican Presidential candidate. I wish I was a gambling man, I should have put a bet on it. The caucuses have proved that the Trump phenomena isn’t a foible in the American political mind-set, it is a reaction to world instability and the growing realisation that America’s power has lessened. It is also in part a reaction to the over exposure America has had to the global economy and the currency wars that are being played out from the EU to Asia. It isn’t exclusively just these reasons of course, the political genus won’t all be looking at it from the macro-economic level, but I have been surprised to read in the Washington Post that there are members of the Middle-class who are voting for Trump.
This shock only comes from the well-documented statistics that his majority of votes comes from his self-confessed “poorly-educated”, those without college education. Why therefore is this occurring and where does gold come into this?
Trump is the best asset class this year (other than Hilary), he is a direct development of discontent formed because of the establishment and the
status quo. He is a celebrity of sorts and that helps with his publicity but his appeal is that he is not part of the establishment.
Gold is benefiting from all the uncertainty that is unfolding this year. Much like Trump, it is riding a wave of speculation that the establishment (mainly the Banks) have not dealt with the issues that caused recession last time. The fear that recession is round the corner is a genuine concern and the inflated equities have already had a correction following multiple counts of low profit announcements made by businesses. Likewise the Chinese economy is no longer heaving with production and is slowing down – I for one am watching the so called BRIC countries waiting for the next couple of announcements – I strongly suspect larger ripples will be coming.
Gold is the anti-establishment asset class. They will try to suppress it and are quick to write it off – but the reality is that it is being bought into and voted for by those who condemn it. It is a product of its surroundings and we wouldn’t have to have it if it wasn’t for the defective financial sector that keeps us grinding to a halt.
Verdict:- Gold is sitting pretty at the moment. I still think there is more uncertainty to come out and I haven’t mentioned Brexit which is only going to cause more riskiness. Gold for the most part reflects fact in its pricing – it is a mirror of economic uncertainty. As for Trump – he is a mirror of a cracked political system – he may even shatter it. Bad luck for seven years?
Article by Michael Cooper
Gold Rush Before ECB Announcement
Last week was the first time in a year that I didn’t write an article. No I wasn’t being indeterminably lazy and nor was I blissfully on holiday. It was due to the fact we had the busiest week we’ve had since early-mid 2012. So much so the Telegraph contacted us after we had queues to buy gold. It was unbelievably hectic here at West End office and there was no time for me to pore over writing a gold analytical discursion.
So what happened last week? What made us have a Gold rush?
The last few weeks including most of January, the market has been gaining momentum. Equities, as I mentioned in an article some time ago, has felt the effects of an interest rates rise. The over-inflated confidence in the market has come off and so has the shine. Fleeing investors from the equities markets have flocked to gold. As I have stated previously, gold some time ago was due its correction but in the current conditions, despite the strength of the dollar, gold has risen. It pays little to no attention to the dollar and surveys the economic scene far more broadly than other asset classes. As market confidence wanes in the stock markets and other markets such as property begin to slowdown, the feeling that the nose of the plane is no longer in the ascendancy begins to take hold. Investors are beginning to worry about the markets and that the cycle for recession is only just beginning.
It is hardly surprising. We don’t run before we walk, yet the the unbridled confidence in the markets has been encouraged on the promise of an interest rates rise and everything is on the up. The US has increased the Reserve’s interest rate, raising the interest payments it receives from credit it has lent. Which is all well and good but this is a stark contrast to other Central Banks. In January, the Bank of Japan (BoJ) announced the decision to cut interest rates to -0.1%, effectively charging the banks for holding deposits overnight. The reason given by the BoJ echoed ECB’s Mario Draghi in 2012 by stating the bank will do whatever it takes: “What’s important is to show people that the BoJ is strongly committed to achieving 2 percent inflation and that it will do whatever it takes to achieve it,” – BOJ Governor Haruhiko Kuroda.
The Bank of Sweden likewise has followed the trend and cut its interest rate to -0.5%. The global currency war is continuing. On the one side you have the US, determined to race ahead trying to sure it’s economy up with a strong currency. On the other side you have Japan, Sweden, Switzerland and the ECB racing to devalue, trying to beat their neighbour to it.
Later today we have the ECB announcement from Mario Draghi as questions are being asked whether he is up to the task of “whatever it takes” that he outlined in 2012. Germany in particular are shouting the loudest. The ECB have missed target after target and now the voices of discontent are less than muted. The ECB have already stated further quantitative easing could be invoked, adding to the snow-balling of currency devaluation.
Amongst the currency skirmish, you have the Chinese. They already devalued their Yuan in attempt manage their economy. Likewise, they know they are slowing and they know what it is going to mean for the rest of the world. So what is it they are doing? They in fact are buying gold – they are becoming and increasing buyer in the gold rush. They are buying the one thing that is the only super hedge – the yellow metal. The Chinese added 21 tonnes of gold to their reserves according to the World Gold Council. Furthermore, the Chinese have also bought the lease of a 1,500 tonne gold vault in London from Deutsche Bank in January. A big indicator as to the Chinese trying to strength its Yuan with physical gold.
Verdict:- We felt the effect of the gold in the last couple of weeks. The price has rocketed in January and given how the first part of this year has started, it could well continue. My biggest concerns are things like the BoJ and what the Chinese are doing. Things are not going well at the macro-economic level and if the last week was anything to go by, any more bad data could spark something more aggressively-recession-looking. The gold rush may only just be beginning.
Article by Michael Cooper
Bank of England Cut Growth Forecast as MPC vote 9 – 0 to hold rates
TGIF – Thank God It’s Friday – a sentiment we are all no doubt thinking, some more fervently than others. One of those others is probably Mark Carney, the Governor of the Bank of England. Commuting into town this morning, the tube was stuck between Caledonian Road and Kings Cross St. Pancras and I was trying to place myself as Carney or Yellen and what it would be like to have such responsibilities. Arguably, they are to a degree, mouth-pieces on behalf of a team of analysts, board-members and researchers who advise after having completed copious amounts of analysis on the economy. But ultimately it falls on them. They are the driver on the train and have to create reassurance that they can see the light at the end of the tunnel.
Unfortunately everybody on the train is tired of hearing the same old, “we have signal failure/we are having to stop to regulate the service”. The Bank of England have cut the growth forecast from 2.5% to 2.2% and the only hawk on the MPC (Ian McCafferty) who usually votes for a hike, has suddenly changed tack. So where does that leave us?
Growth Forecast will be subdued this year
Overall the conductor is assured the train is still going to reach the destination. With the persistence of low inflation, the consistently strong dollar (although that could well falter), what looks like a continuation of lower demand in China and the Bank of Japan’s decision to hold negative interest rates, the light and the end of the tunnel is disappearing. In the US, commentators are increasingly critical about the FED rates rise and whether it was too soon. So much so that every piece of economic news is under the microscope – this week’s Nonfarm Payrolls is the incumbent of this scrutiny and it is unlikely to dampen the negative sentiment, as news has been leaked of weak data.
So where does this leave gold? As is the way, Gold is vilified in one breath and canonised in the other. The problem with the world nowadays is that with advancements, we all have debit cards, statements are online and nothing exists. When the going is good, owning nothing physical or existent matters. But when things start unravelling, our innate nature as humans to seek security, we look to things like gold. Gold is a constant. Yes it fluctuates as with all markets – but it’s greatest value lies in its uncompromising physical matter – it is an entity with no agenda. The equities market, although based on a list of existing companies, is in essence just a tool for leveraging capital and crystallising an agenda for a company that has something to gain. When and if the equities markets depreciate – as has begun to happen, it is the common investors that lose value, the companies do not. They will still operate and continue to trade – they may have to review operations but usually they keep trading. If the recession taught me anything, the equities market whilst useful for generating income for a while, is devoid of reality and some people are too big to fail – the banks for example. It doesn’t feel like we’ve learnt anything.
With the cut in growth forecast, it makes me feel like we are stuck on this never-ending train. There is no final stop and we can’t get off. There is too much invested and too much at stake and some people are too big to fail. It isn’t going to harm the big corporations that much, they might have to cut a dividend and restructure operations but in the end it is the investors that don’t have the inside track that suffer. Gold is a safety. It has neither feeling or device, it simply reacts to economic climate, the greed and the smoke and mirrors published from companies and banks to keep the money in the system. It is, in my opinion one of only true reactors to the systemic failure. Next stop, cyclical global recession?
On that note Happy Friday!
Article by Michael Cooper