Gold and Silver Price Review - August 2018

Price Highs - Gold @ £950.12 Silver @ £12.03

Price Lows - Gold @ £922.40 Silver @ £11.19

Bank of England - Mark Carney kicks off August with an interest rate increase of 0.25% from 0.5% to 0.75%. This is the highest rate since March 2009 and could indicate confidence in the UK economy - though many think its too little too late. During his briefing he shares a view that a no deal Brexit is "uncomfortably high". The papers couldn’t resist jumping on this one claiming Mark had lynched sterling with claims the sterling value had bombed. I myself got caught in the headlines but it wasn’t until further reading that the drop was around 0.4% and even with that it recovered almost instantaneously.  How much of a role the media plays distorting the view of the economy cannot be understated here as surely their reporting influences investment decisions.

Turkish Lira - the Lira has fallen 45% against the dollar in 2018. Five years ago 1 dollar would buy 2 Lira now it buys almost 7. The drop in Lira will make it more difficult for Turkish companies who import goods and for those trying to service any foreign debt. When debt cannot be paid there is a contagion risk where banks across the EU could be affected. Turkey has seen high inflation rates for some time and the usual practice of central banks to raise interest rates further have been hampered by President Erdogan's distaste for interest rates who called them the "mother of and father of evil". Towards the back end of August 2018, leading banks in Turkey have been downgraded. Even with steps taken by the banks and more appealing exports (due to lower costs) the markets are still abandoning Lira pushing prices down further. There is a real fear that large amounts of debt owed to UniCredit, BNP Paribas, BBVA and HSBC will not be paid and Turkey will default. This could have widespread consequences across the EU and even further which could in turn spell a good run for precious metal prices.

Italian economy - following on from a classic Italian election where nothing can de decided, the emerging ruling parties appear to be walking into a severely unstable economy. Italy is on the knife edge with poor growth performance in the last decade and any slowing of the world economy (such as a result of trade wars) Italy could find itself in recession. This could be a repeat of the Greece bail out and even have far reaching consequences for the European and global economy. If the risk spreads, we could once again see a gold run. 

Trade Wars - the US has a due date of 30th August to press ahead with $200 billion more tariffs against China. We will comment further on these in our next review. 

You may wish to read more articles in our market news section.