Gold News

UK Pain, Gold's Gain

For UK investors choosing to Buy Gold in 2008, the metal discharged itself without a word of complaint...

WITH THE BANK OF ENGLAND in panic mode, slashing the returns-paid-to-savers to three-century lows at the start of December, the clear winners from its campaign to reboot the bubble so far have been gold investors stuck with Pounds to earn and Pounds to spend.

Since the Old Lady began cutting interest rates exactly 12 months ago, the number of UK investors choosing to own gold through our service here at BullionVault, for instance, has risen by more than 130%.

So far, at least, they look to have made a wise choice.

  • Since the start of December '07, the average UK house-price has dropped by 16% (Halifax data);
  • The FTSE100 index has dropped by one-third;
  • Cash ISAs (before inflation) have added just £3.40 to every £100 invested (BoE data);
  • Government gilts – which typically benefit from lower Bank interest rates – have returned just under 13% (capital + coupon).
  • The Gold Price in Sterling, in contrast, has risen by more than one-third, up by 33.4% and hitting a series of all-time record highs throughout November above £550 an ounce.

Manufacturing output, meantime – a key target for the Bank's devaluation policy – has contracted by around 10% (PMI index), even as the Pound in your pocket lost one-fifth of its international value on the currency markets.

Here at home, the Pound has lost 3.7 pence of its purchasing power since Base Rate began its descent from 5.75%...down at a near-record pace to just 2.0% today.

Cash savers have been hammered by Bank of England policy, in short. And now, like pretty much all government wonks everywhere, the "business-friendly" socialist authorities are planning to borrow the nation out of its debt-led deflation.

That will only hurt gilt investors in turn, of course, most especially those hapless fund clients being fed into 5- and 20-year gilts at near-record low yields. Little wonder so many private individuals are opting out of official paper entirely, choosing un-inflatable, un-indebted gold as a bolt-hole for a portion of their wealth.

Bank Rate now stands at its very lowest level since the Bank of England was founded in 1694. Measured against the Retail Price Index (Oct. data), the Bank's key lending rate now offers an annual loss of 2.2 pence in the Pound – the worst loss of purchasing power since May 1980.

In the last two months alone, and on a proportional basis, the Bank of England has slashed the returns paid to savers at the fastest pace since 1858.

Gold, on the other hand, has discharged its key duties for UK investors without a word of complaint in 2008 – defending them against a collapse in the currency and a fresh outbreak of idiocy in Westminster.

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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