Gold in sterling was 2.2% higher yesterday and was marginally higher in dollar terms after the Bank of England cut interest rates to all time, 322 year record low at 0.25% and surprised markets by renewing and aggressively expanding quantitative easing or QE.
Sterling fell sharply on markets and gold rose from £1,014/oz to over £1,036/oz where it remains this morning. Ultra loose monetary policies are now even looser after the BOE cut interest rates for the first time in more than seven years and launched a bigger-than-expected package of monetary measures.
The Bank cut official interest rates to a new record low of 0.25% from 0.5% and signalled they would be reduced further in the coming months. The deepening of ultra loose monetary policies is bullish for gold, especially in sterling terms.
Sterling gold is 38.4% higher in 2016 year to date. This means that gold is now just 14% below the all time record nominal high of £1,179/oz reached on the 5th of September 2011. Gold remains one of the best performing assets in all currencies over a 10, 15 and 20 year period.
Governor Carney also aggressively renewed and expanded its QE and launched a new £100bn funding scheme for banks. The BoE also launched a new £70 billion a month bond-buying programme which was quickly termed a ‘sledgehammer stimulus’ by analysts. This will include £10 billion of sterling denominated investment grade corporate bonds, from companies the BOE judges make a “material contribution” to the UK economy.
The BOE clearly signalled that this as just the start and the minutes of the rate setting Monetary Policy Committee stressed there was even “scope for further action” in all elements of the package.
The declared reason for the aggressive easing was to protect jobs and prevent a post-Brexit recession. However, the recent stress tests showed how vulnerable UK banks and the UK banking system is with Barclays, Royal Bank of Scotland and HSBC all vulnerable.
Indeed, the concern is that many large European banks and the European banking system remains vulnerable. This has been seen in the sharp fall of Portuguese and Italian bank shares and indeed of European behemoth banks such as Credit Suisse and Deutsche Bank.
Some have even questioned the recent “stress tests” and argue that they are seriously flawed as they fail to consider the real risk of contagion in the Eurozone banking and financial system.
A few analysts, including GoldCore, believe that the UK is heading for new financial crisis on a greater scale than 2008 and the Bank of England has been lulling consumer and investors into a false sense of security in recent years. This has meant that consumer, company and corporate balance sheets far from being repaired have actually deteriorated and total debt levels in the UK are now higher than they were in 2007. This vulnerability means that bail-ins remain a real risk to all UK depositors.
The BOE rate cut and renewed and expanded QE reminds participants that we remain in an ultra loose monetary policy environment and this is very supportive of gold. Ultra low and negative interest rates, concerns about the economic outlook and geopolitical risk are also supporting gold.
Stocks are mixed today and the dollar is essentially flat. Should risk aversion raise its head and stocks or the dollar move lower, we would expect a safe haven bid to come into the gold market.
All eyes will be on the non-farm jobs number today at 1330 BST. A poor jobs number will likely see gold eke out further gains on safe haven demand. A forecast-beating jobs number should lead to gold seeing selling pressure.
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Gold Prices (LBMA AM)
05Aug: USD 1,362.60, GBP 1,036.39 & EUR 1,222.52 per ounce
04Aug: USD 1,351.15, GBP 1,016.60 & EUR 1,213.87 per ounce
03Aug: USD 1,364.40, GBP 1,023.16 & EUR 1,218.96 per ounce
02Aug: USD 1,358.15, GBP 1,025.13 & EUR 1,213.10 per ounce
01Aug: USD 1,348.85, GBP 1,022.97 & EUR 1,207.76 per ounce
29July: USD 1,332.50, GBP 1,012.03 & EUR 1,200.18 per ounce
28July: USD 1,341.30, GBP 1,017.64 & EUR 1,208.78 per ounce
Silver Prices (LBMA)
05Aug: USD 20.22, GBP 15.36 & EUR 18.14 per ounce
04Aug: USD 20.16, GBP 15.24 & EUR 18.11 per ounce
03Aug: USD 20.59, GBP 15.43 & EUR 18.39 per ounce
02Aug: USD 20.71, GBP 15.65 & EUR 18.51 per ounce
01Aug: USD 20.51, GBP 15.56 & EUR 18.37 per ounce
29July: USD 20.40, GBP 15.20 & EUR 18.03 per ounce
28July: USD 20.41, GBP 15.51 & EUR 18.41 per ounce
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