Gold in Pounds Rises to New Record High over GBP 944/oz on Stagflation Risk – Moody’s Lists 14 UK Banks for Downgrade Review …

Gold is marginally higher in most currencies today as the yen, the dollar and the pound are all weaker. 

Gold has reached a new record nominal high in British pounds due to the growing risk of stagflation in the U.K. and due to Moody’s somewhat belated threat to cut its ratings on most UK banks. This was not helped by Chinese ratings provider Dagong Global Credit downgrading the U.K.’s local and foreign currency sovereign credit rating from AA- to A+ with a negative outlook.


Cross Currency Rates

The increasingly powerful Chinese credit rating agency warned that the U.K. government’s fiscal deficit is likely to be a very high 9% of GDP this year and the U.K.’s banking system has a large amount of risk exposure, which could create risks for the government. It estimates that about 40% of the banking system’s GBP 2 trillion worth of assets is exposed to risk.


Gold Bullion in British Pounds – 30 Day (Tick)

It is important to remember that gold in sterling’s record today is only a nominal high. Gold’s British pound nominal high in 1980 was at GBP 371/oz (21 January 1980) and therefore the inflation adjusted high is over GBP 1,200/oz.


Gold Bullion in British Pounds – 1 Year (Daily)

Gold has had a period of correction and consolidation in sterling (see chart) and indeed in all currencies in recent months. Even with gold at record sterling highs at GBP 942/oz and after the recent gradual gains, gold is only some 14% higher than 12 months ago and only some 3% above the record nominal highs (GBP 914.77/oz ) seen at the end of December 2010 – nearly 5 months ago.

Such gradual gains are hardly indicative of “irrational exuberance”, an investment mania or a speculative bubble.

The backdrop of strong physical demand internationally and especially in Asia, points to a weak and very fragile UK economy and British bonds and a British pound that are vulnerable to depreciation.

UK investors and savers, like their counterparts internationally, would be wise to diversify into international equities, international bonds (high credit; short dated) and gold in order to protect against stagflation and the continuing debasement of their currency. 

 

Gold

Gold is trading at $1,521.60/oz, €1,079.99/oz and £942.98oz.

Silver

Silver is trading at $35.68/oz, €25.32/oz and £22.11/oz.

Platinum Group Metals

Platinum is trading at $1,757.25oz, palladium at $734/oz and rhodium at $1875/oz.

News

(MarketWatch) — Gold, silver move higher; dollar weakens
http://www.marketwatch.com/story/gold-silver-move-higher-dollar-weakens-2011-05-24

(Reuters) — Euro-priced gold strikes record on debt worries
http://www.reuters.com/article/2011/05/24/markets-precious-euro-idUSL3E7GO00M20110524

(Financial Times) — Euro-priced gold jumps to record high
http://www.ft.com/intl/cms/s/0/c3c8b528-8542-11e0-871e-00144feabdc0.html

(FastMarkets) — BULLION MORNING – Gold falls fractionally, safe-haven interest battles dollar ascent

http://www.fastmarkets.com/scoop/?id=31112&v=0&lang=en&cid=138180&type=1

Commentary

(Financial Times) — Keynesians are complacent about the dollar
http://www.ft.com/intl/cms/s/0/bb8827d6-856f-11e0-ae32-00144feabdc0.html

(Wall Street Journal) — Mundell – ‘Father of Euro’: Deflation Risk for the Dollar
http://online.wsj.com/article/SB10001424052748704816604576335250426158790.html

(Financial Times) — Small gains give succour to gold bugs
http://www.ft.com/intl/cms/s/0/d4046d10-855b-11e0-ae32-00144feabdc0.html

(Mineweb) — Hate paper money, love gold. Gold and silver turning up – Puru Saxena
http://www.mineweb.com/mineweb/view/mineweb/en/page96985?oid=127744&sn=2010+Detail&pid=102055

(Financial Times) — Silver and short covering – a theory
http://ftalphaville.ft.com/blog/2011/05/20/574306/silver-and-short-covering-a-theory/

(MoneyWeek) — How Spain could rip the eurozone apart
http://www.moneyweek.com/news-and-charts/economics/europe/how-spain-could-rip-the-eurozone-apart-12101

(ZeroHedge) — David Stockman: "Both Parties And The White House Are Advocating A US Default"

http://www.zerohedge.com/article/david-stockman-both-parties-and-white-house-are-advocating-us-default  

 

Mark O'Byrne

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