GoldCore Update: Fears of New Sterling Crisis See Sterling Fall Sharply Against Gold

Gold
Gold range traded between $1,115.00/oz and $1,120.00/oz before closing marginally lower at $1,117.40/oz in US trading. It reached as high as $1,120.00/oz in Asian trading earlier this morning. In early European trading, gold rallied to a weekly high, trading at $1,121.80/oz and in euro and GBP terms, gold is trading at €828/oz and £749/oz respectively.

Sterling gold has reached new record nominal highs over £750/oz as concerns of a sterling crisis have seen sterling fall versus most major currencies and gold. Sterling’s previous record nominal gold high was on the 3rd of December 2009 at £735/oz (inter day) and £731.59/oz (London AM fix). Sterling has fallen by more than 7% against gold and 6.4% against the dollar in the last month. Since the start of the year sterling has fallen by more than 10% against gold and by some 7.5% against the dollar (see Performance Table below).

Sterling’s fall is due to fears of an election stalemate between Labour and the Conservatives and the realisation that whoever wins the election, there will have to be severe fiscal measures (in terms of cutting spending and raising taxes) in order to steady the ship that is UK Plc. UK government deficits are high and rising and this is causing concern in bond and currency markets about how these significant deficits will be funded. There is growing doubt as to whether there will be sufficient international appetite for the scale of government debt to be issued in the coming months and years. Markets fear that the UK government will be forced to create more sterling in order to buy their own government bonds and that quantitative easing and debt monetisation may continue for longer than expected. The Bank of England continuing to punish savers with near zero percent interest rates at 0.5% while inflation appears to be looming is also contributing to concerns about a new sterling currency crisis.

Given the degree of macroeconomic risk facing economies internationally and the unprecedented fiscal and monetary responses, we are likely to see further volatility in currency markets and there is a the real risk of an international currency crisis.
Gold’s finite currency credentials should continue to lead to continuing very robust investment demand , particularly from central banks, which should see gold continue to eke out gains versus the major currencies.

Silver
Silver range traded this morning in Asia from $16.33/oz to $16.50/oz. Silver is currently trading at $16.43/oz, €12.18/oz and £11.02/oz.

Platinum Group Metals
Platinum is trading at $1,554/oz and palladium is currently trading at $440/oz. Rhodium is at $2,575/oz.

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Mark OByrne

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