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Metals and Pound Take a Dive as Dollar Strengthens

Author: Jon Clarke - Bullion & Economics Editor

Published: 23 Sep 2020

Last Updated: 25 Sep 2020

Synopsis

Metal markets have taken a hammering in recent days as increased US optimism boosted dollar demand. The pound also took a dip as the UK implements further restrictive measures in order to contain the currrent spike in COVID-19 cases.

Gold and Silver Prices

Both gold and silver took substantial hits as UK markets opened Monday morning hitting respective lows of £1,478.29 and £18.24 since the week began.  The drop, considered to be a combination of large metal sell-offs, increasing optimism in the US dollar and concerns over resurgences in COVID-19 cases in areas of Europe, comes ahead of Jerome Powell’s testimony before the House Financial Services Committee on the Fed’s response to the pandemic.

Pound Dives as UK Implements Further COVID Restrictions

As many parts of the UK head into regional lockdowns, the pound took a beating against both the dollar and the euro at $1.28 and €1.09, respectively. The pound was given some relief as Bank of England Governor Andrew Bailey offered some push back at concerns that the Bank would look to enter negative interest rates in the coming months. While not definitive, Bailey said that results from negative interest rates had been a “mixed bag” among the countries with them already in place. Although anything below the current 0.1% rate would be within negative territory, not all are convinced that the Bank won’t drop rates further with Société Générale FX Strategy Head, Kit Juckes saying: 

"In a monetary policy race to the bottom, the Bank of England's willingness to cut rates below zero gives it an edge"

Juckes also asserted:

"I don't think there is benefit to the UK from an even weaker currency, but as long the MPC is heading that way, I won't be buying Sterling."

A Buyers' Market

There is always profit to be made whether prices are high or low. Low prices make gold a more profitable investment, while a weaker pound gives more incentive to look for alternative assets. If March’s pre-lockdown gold sell-off is any indication, then it can be expected that gold prices will see a continued rise as economic uncertainty remains. However, if anything is certain, it’s uncertainty. 

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