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November 2018 Gold and Silver Price Review

Author: Ian Davis - Bullion Manager

Published: 21 Nov 2018

Last Updated: 8 Feb 2019

Gold Price per tr oz - high@ £961.04 / low@ £922.33

Silver Price per tr oz -  high@ £11.47 / low@ £10.71

 

Sterling

Is on the up (as of 7th November) with a 3.34% increase, trading at $1.31 USD after a rally on the back of Brexit optimism.......again. The prospect of a deal and compromise on the Irish backstop sees the pound float higher but we do not bank on it staying this way. Brexit talks weigh heavily on the value of the pound, more so than trade and the economy it would seem, so any less than positive announcement will see it drop. Do take note that regardless of the political nonsense currently being played out the pound is extremely susceptible to any Brexit announcement. We can only expect the value of the pound to be hit hard and fast when a deal is finally reached. I for one would not have significant wealth in my bank account right now.  On the 14th November sterling is anyone's guess! Currently trading at US$ 1.314 up 1.4% as optimism grows around the draft Brexit treaty. Sterling tumbled the Friday before as transport minister Jo Johnson (Boris' pro-European sibling) resigned in protest to the Brexit negotiations. There was a wider fear that more MP's would follow which could leave the Prime Minister struggling for votes on her Brexit deal. We await the full fallout over the coming days as politicians are whipped into voting for or against the draft text. The DUP and a number of Tory Eurosceptics have made it public they will vote the deal down adding further pressure on the currency. To be honest Its still anyone's guess how the markets will respond.  As of 29th November the pound is currently trading at $1.2772 down from $1.2901 roughly a 1% drop. On Thursday 29th, the pound tumbled against the EUR falling 0.6% to £0.89. The main driver behind all this is the inability of Theresa May and the government to rule out a no-deal scenario!

Economy 

Announcements this week include the third quarter of UK GDP, the European Commission's bloc wide economic forecast and quarterly results for several S&P 500 companies. On all count’s investors will be looking for any gaps between forecasts and "reality" and we can expect markets and gold prices to flux in response. Global economic activity has been decreasing since its peak in 2017 exacerbated by trade wars and equity sell-offs. The market is more than likely in a state of correction, but investors remain spooked triggering further sell-offs. Even for someone, like me, possessing an optimistic outlook on life, I would find it difficult to hold my nerve after reading reports of increasingly confrontational rhetoric between China and the USA. Philip Hammond said on Wednesday 28th November that Theresa May's Brexit deal would leave a lot of people worse off. To deepen our woes there is no available plan to leave the EU that will increase British prosperity. We could have guessed as much as why the EU would offer preferential terms is beyond me given other Eurosceptic states appetite to upturn the EU. I do not think Italy would require much ammunition at the minute! He went on to tell the BBC Today programme "If you look at this purely from the economic point of view, there will be a cost to leaving the EU because there will be impediments to trade"

Brexit

UK business leaders call for a people’s vote on the Brexit deal whilst Leave.EU funding questions give rise to dubious answers. We wonder whether, if the funds are indeed proved to be illegitimate, would this void the vote and trigger another referendum? How would this one go if the public were given another chance? On Monday, Brussels and Dublin rejected Mr Raab's plans for the Irish backstop but this was swiftly followed by announcements of progress. I wish someone would just give me an update when it's all over with! On the 14th November negotiations reached a climax as a draft treaty is prepared ready for cabinet approval. How its even possible for the UK to get a good deal I do not know! The EU would be foolish to offer anything but a bad deal as any prosperity the UK gains outside of Europe would be ammunition by other EU sceptic governments to leave the bloc. Any agreement requires approval by the UK cabinet, EU states, the House of Commons and then finally the European Parliament......some task! The UK will still be obliged to pay into the EU budget up to 2020 and by 2025 all payments are expected to complete reaching an estimated £50 billion! Any extension to the transition period beyond 2020 could see the UK make further payments into the EU budget! Concessions the prime minister has been compelled to accept include environmental targets, state-aid rules, EU business competition and labour laws. It looks like we are tethered to the EU customs union, EU regulation and budget financing for many years to come. With the inevitable trade friction and decreased rates of immigration  over the next 15 years it is expected to cost the UK 3.9% GDP, equivalent to £100bn, a rather sobering figure....This accompanies the Bank of England announcement that a no deal scenario could cause the steepest recession since the second world war! Whichever way we look, short term at least, the UK is bound to suffer a decline in GDP and the economy is likely to retract. This is almost a given as we try to figure out how to trade with the bloc (arguably our largest supplier and customer) and even get into the process of negotiating global trade deals. These agreements will take time and will not simply be switched on come March 29th 2019.

Other news:

  • FED interest rates - Jay Powell, Chairman of the Federal Reserve, announced that interest rates are approaching neutral meaning the current rate of growth is sustainable and does not require stimulus or slow down. With the prospect of no further FED interest rate hikes equity markets reacted positively with the S&P closing up 2.3%, its best day in 8 months. We hope this is reality and not fiction influenced by President Trump's rhetoric and attacks on FED policy.
  • USA mid-term elections sees the Democrats winning seats in the House and Republicans strengthening their place in the Senate. We are watching to see how the markets react as Democrats are likely to make tax cuts and economy stimulus difficult for the Trump administration. Lori Calvasina of RBC Capital Markets commented in the run up that most investors have "viewed a Republican sweep as a bullish event for the [stock] market", and a Democratic sweep as a bearish event". Let’s see how it plays out......
  • The US-China trade war seeps into Asia slowing down growth. The contagion risk becomes real as reduced Chinese demand impacts suppliers in countries such as South Korea and Vietnam. There is a concern that if the trade war drags on it may cause a global slowdown - this remains to be seen but is an ongoing worry for investors. On 28th November the war takes its first major US victim. General Motors had been subject to rising supply chain costs notably from steel and aluminium tariffs imposed by President Trump. Four production plants will close in the rust belt where repatriation of manufacturing jobs was a major political lever during the 2016 presidential campaign.  Trump has continued to raise threats. BMW has already moved the manufacture of the X3 from South Carolina to the Chinese mainland to circumvent the trade tariffs. 
  • US sanctions on Iran sees Europe trying to negotiate trade deals seeking to protect non-US trade. Countries fear hosting meetings due to a potential backlash from Washington and companies such as Swift are treading an EU legal minefield complying with US demands after pulling services out of Iranian banks.
  • Brazil - outgoing finance minister warns of an unsustainable pension situation requiring prompt fiscal policy to avoid recession and further social unrest. Brazil is an important country for emerging markets and have barely recovered from the 2015 recession with over 12 million people still unemployed. Any unrest is likely to be met with brute force policing by the new far right President-elect who is keen on arming the public and granting more impunity to police who kill in the line of duty. Fighting fire with fire may cause turmoil for the Brazilian economy!
  • China's reliance on debt fuelled growth which has been rising for the best part of 10 years could be coming to an end. Their debt:GDP ratio has stopped rising which is helping settle nerves of investors worried that any wobble in their economy could devastate global markets.
  • The Turkish economy slumps as the reality of a devalued Lira hit home. The Lira had 25% wiped off its value earlier this year. This poses a risk to Erdogan's presidency as he runs for local elections next year. Erdogan's potential to stimulate the economy with further borrowing and spending is raising eyebrows of investors who predict further weakening of the currency. 

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

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