The merits of Gold priced in Sterling
Editor’s note: Over the last few days our editors have offered you their views on gold, and seeing as the yellow metal can always be relied upon to divide opinion, we’d like to hear if you’ve agreed with them.
Are you bullish about gold? Or do you think the days of major price hikes are long gone? Please send us your views, or any questions you might have at firstname.lastname@example.org and we’ll be happy to address them in one of our articles.
In the meantime, here’s currency expert Tom Tragett with his take…
Since peaking around $1,350 back in early September this year, gold has been under a degree of pressure with any rallies turning out to be fairly stunted affairs.
That has kept the price inside a $1,260-$1,310 range for the past 2 months and whilst it has been showing signs of bouncing lately, as priced in dollars the metal has been quite dull. More recently however, with global equity markets shaking down somewhat in early November, the metal has looked a little more interesting.
However, from my perspective the interest is more from a long term view and certainly not one onto which I would venture a leveraged bet or one that I would price in the dollar necessarily either.
I think gold priced in sterling is far more interesting just now.
In fact, I have had enquiries from friends who have expressed an interest in buying gold coins. As all of them are UK based, I think its safe to say that from their perspective it would make such interest a XAU/GBP(sterling gold) trade even if by the physical coin route.
Frankly it makes no difference to me how they want to play it in terms of what kind of gold they want to buy, but it did make me return to looking at gold as priced in pounds which I haven’t done for quite a few months. In addition, I would personally favour physical gold or perhaps even gold shares priced the same way.
So since peaking close to £1,200 an ounce back in 2011-12, the price subsequently fell back to around £700 before we voted to leave the EU in 2016. Of course, since then the price rose sharply, back above £1,000, largely as result of the fall in the pound versus the dollar.
Now, at the beginning of the year that price was above £1,050 an ounce, but for the past few months, after falling back from there, it has been trading a sideways range – largely in between £950 and £1,025 an ounce- as I write, it’s close to £970 an ounce.
Do I see merits for the UK investor to hold a portion of their wealth in gold right now? Yes, I do, as it’s a hedge against a number of possible unforeseen outcomes, not least another lurch lower in the pound if there’s a clumsy EU departure, but against a downturn in the housing market and or the UK equity markets, all of which could hit at once.
More than that though, I think it’s is not just a bet on the pound or the UK markets in general, it’s also a trade in gold itself, which has taken a back seat from a ‘hot money’ perspective recently.
Perhaps we have the hot money flowing into digital currencies to thank for that? I am not sure quite honestly, but gold could find a way back to higher ground if the global equity markets do take a turn for the worse.
Perhaps the interesting thing over recent weeks and months is that fact that despite a significant further push higher in those equity markets, gold hasn’t really lost that much shine which means it could be ripe for a bounce if the opposite happens.
So, I think gold priced in sterling is most definitely an interesting proposition right now. Of course if the pound were to rise significantly at the same time as gold were to fall then this could make for a further move back through £925 an ounce, and may even threaten the 2016 lows near £700 an ounce.
So for that reason I would advocate only trading money that I can afford to tuck away for some time and money that isn’t readily sensitive to the immediate price.
Of course if the price subsequently charges back above £1,200 then a profit is always a profit, but one that could surely have further to run if it breaks above there again.