We use cookies (including third-party cookies such as Google) to remember your site preferences and to help us understand how visitors use our sites so we can improve them. To learn more, please see our privacy policy and our cookie policy.

To agree to our use of cookies, click 'Accept' or choose 'Options' to set your preferences by cookie type.

Options Accept
BullionVault

CHARTS

  • English
  • Deutsch
  • Español
  • Français
  • Italiano
  • Polski
  • 日本語
  • 简体中文
  • 繁體中文
  • Daily audit
  • Help
  • Contact
  • Deposit
  • Login
  • Open account
  • ABOUT US
    • About BullionVault
    • In the press
    • Reviews
    BUY/SELL BULLION
    • Vaulted gold & silver
    • -Live order board
    • -Daily Price
    • Coins for delivery (UK)
    INVESTMENT GUIDE
    • Guide to gold
    • -How to buy gold
    • -Gold investment
    • -Gold investment plan
    • -Investment insurance
    • -Compare asset performance
    • Guide to silver
    • -How to buy silver
    • Guide to platinum
    • -How to buy platinum
    GOLD NEWS
    • Gold news front page
    • -Gold price news
    • -Opinion & analysis
    • -Market fundamentals
    • -Gold/Silver Investor Index
    • -Infographics
    CHARTS
    • Gold price
    • Silver price
    • Platinum price
    • Price alerts
  • Login
  • Open account
  • BUY/SELL BULLION
  • Vaulted gold & silver
    • ⤷
    • Live order board
    • Daily Price
  • Coins for delivery (UK)
  • INVESTMENT GUIDE
  • Guide to gold
    • ⤷
    • How to buy gold
    • Gold investment
    • Gold investment plan
    • Investment insurance
    • Compare asset performance
  • Guide to silver
    • ⤷
    • How to buy silver
  • Guide to platinum
    • ⤷
    • How to buy platinum
  • GOLD NEWS
  • Gold news front page
    • ⤷
    • Gold price news
    • Opinion & analysis
    • Market fundamentals
    • Gold/Silver Investor Index
    • Infographics
  • CHARTS
  • Gold price
  • Silver price
  • Platinum price
  • Price alerts
  • ABOUT US
  • About BullionVault
  • In the press
  • Reviews
  • Help
  • Contact
  • Daily audit
    • English
    • Deutsch
    • Español
    • Français
    • Italiano
    • Polski
    • 日本語
    • 简体中文
    • 繁體中文

Gold News

Live support

NEED HELP? ASK US NOW

Search form

Gold News front page

Gold Price News

Gold Erases Week's $25 Gain as Factory-Gate Inflation Spike Sees Everything Fall But the Dollar

More...

Gold Investing In Depth

Learn about gold bullion bars

Learn about gold bullion coins (and costs)

Gold investment: Why & how?

Gold Investment Analysis

  • Latest Gold Investor Index
  • Diversification: Gold as investment insurance
  • 40-year Asset Performance Comparison Table

Gold Articles

Opinion & Analysis

Gold Price News

Investment News

Gold in History

Gold Books

Gold Investor Index

Gold Infographics

Archive

  • April 2021 (9)
  • March 2021 (26)
  • February 2021 (23)
  • January 2021 (25)
  • December 2020 (24)
More...

List of authors

What Gold Says About the British Pound

Tuesday, 10/30/2007 13:16

If you think the US Dollar's losing out to gold, just take a look at the British Pound...

WHAT WOULD IT TAKE for the mass of investors to wake up and Buy Gold?

   Are they still waiting for a new all-time high perhaps, even after watching Gold Bullion Investments beat stocks and bonds for more than six years?

  
Well, the Gold Price just made a new record high for British investors. You might not think that's possible, what with the Pound Sterling now breaking new quarter-century highs against the Dollar above $2.06.

   If you've spent any time in London lately, you might think the idea laughable. At current exchange rates, a pack of cigarettes cost me nearly $12 this weekend.

   Oh sure, no doubt I should quit...but do I also need to stop taking the Tube (now more than $8 for a single journey), eating lunch (up to $6 for a factory-made ham and cheese sandwich) or going to the cinema (at least $20 before you buy popcorn)...?

   The financial media here in the British capital, meantime, remains fixated on the Dollar Price of Gold...almost as though it's ashamed (or ignorant) of the Pound's loss of gold value.

   But hey, Dear Old Blighty is free and clear of the problems now causing the US Dollar to sink against gold, right?

   Well, not according to gold it ain't...

"Debt-ridden Britons owe £216 billion [$445bn] on credit cards and unsecured loans but are refusing to rein in their spending," reports the Metro newspaper, given away free on the Tube today.

   "Consumer debt rose by £1.35 billion [$2.78bn] last month and total debts, including mortgages, went up by £11.2 billion to £1.38 trillion [$2.84trn].

   "It means the country is slipping £15 million further into the red every hour or £373 million a day."

   Put another way, the British nation is growing its household debts by more than £6 per day for every man, woman and child. That's excluding the government's outstanding debt, valued at £574.4 billion by the end of the 2006/2007 tax year.

   If you want that number in US dollars, personal debt is the United Kingdom – home to the "strong Pound" – is now rising by $1 million every two minutes. Total household debt now stands above 160% of personal income, and it's just overtaken an entire year of economic output.

   Worth some $1.18 trillion on top, outstanding government debt is equal to 42.6% of GDP, the highest proportion in nearly a decade. It's also 10 years since the British nation last managed to break-even on its international trade in goods & services.

   Our balance of payments deficit reached more than £48 billion in 2006 (nearly $98bn), more than 10 times the worst gap of the mid-1970s, back when the trade gap threatened "a violent withdrawal" of foreign investment according to internal government memos.

   Energy Minister Lord Balogh, an economist by trade, privately warned the Prime Minister of a "possible wholesale domestic liquidation starting with a notable bankruptcy...The magnitude of this threat is quite incalculable".

   The risk of a run on the Pound became so great – provoked in no small part by government debt hitting 53.8% of annual GDP – that Britain, led by a Labour government just as today, begged the International Monetary Fund (IMF) for a bail out to help it cope as unemployment and inflation reached "exceptional levels".

   The Pound began its long descent from $2.42 barely $1.08 over the following decade, while unemployment rose to 10% of the working population as inflation remained above double-digits between 1973 and 1982.

   Still, couldn't happen today. No?

   "Expect a sustained knock-on impact of the recent credit crunch on the wider [UK] economy," warns David Miles, chief UK economist for Morgan Stanley in London. He's not being alarmist; he's simply summarizing the Bank of England's own view, as stated in its recent Financial Stability Report.

   In particular, the Bank of England fears, the rise in the price of credit will push far beyond the spike in short-term London money-market rates. "Partly that is because risk premia and profit margins for lenders had been squeezed to unsustainable levels," explains David Miles. "Indeed, in the UK mortgage market, spreads had fallen to levels that made it hard to make money."

   Now lenders are looking to make money by lending wisely – and at a profit – once again. Hence the collapse in new mortgage lending seen in Sept. Down by one-fifth from the same month last year, said the Bank of England this week, new mortgage lending in fact sank by 27% from Sept. '06 according to the British Bankers Association's latest data.

   First-time buyers are "potentially vulnerable" to the threat of falling house prices sparked by this collapse in new lending. Added to higher interest rates – now at 5.75% from 4.50% two years ago – the "sharp increase in the proportion of new mortgages with high loan to income multiples since 2004 has resulted in interest payments reaching 20% of first-time buyers’ average incomes," says the Bank of England, "the highest share since 1991" – the banner year for the last crash in UK house prices.

   Private investors playing the property market may be even worse off, however. "Net rental yields remain negative," the Old Lady warns in her ironically titled Stability Report. "Bank staff estimate that after deducting costs, the rental yield was about 2.3 percentage points lower than the mortgage rate in third-quarter 2007.

   "Recent investors are relying on continued house price appreciation to earn positive returns [but] buy-to-let investors have often invested in new-build flats in the United Kingdom, which have experienced much lower rates of price appreciation than houses."

   What about the "smart money" of professional investment funds buying commercial and retail property in the UK – the next big thing according to press pundits and seasoned real estate experts alike? Oops! No again.

   "Recent falls in UK commercial property prices and the more persistent falls in yields, along with the potential for overcapacity given a large pipeline of construction, make this sector particularly prone to further shocks and to rises in the cost of finance," says the Bank of England.

   But surely the City of London – the powerhouse of the UK economy, now vying with New York as finance capital of the world – will forge ahead no matter what? The financial services sector has been growing at a greater than 10% annual clip, but the widely-respected Ernst & Young ITEM consultancy just halved that outlook in response to the credit crunch now forcing job cuts across the Square Mile. Researchers at CEBR, another London consultancy, believe 6,500 finance jobs will go as a direct result of this summer's credit crunch.

   That guess-timate came before the real wipe-out begins after the third-quarter write-downs and losses reported by the entire investment banking industry in October '07. And all this while, gold...dumb, yellow, shiny gold...says the British Pound has never been worth less than it is today. In this race to the bottom, all prices are relative, of course.

   But the Pound Sterling could soon become the Dollar's poor cousin once again, just as it was during the global stagflation of the early 1980s.

   So while Gold Priced in British Pounds may have lagged the Dollar-price for the last half-decade, it's just broken a new all-time – and it looks to be pointing higher again.

  • Reddit logo
  • Facebook logo
  • Twitter logo
  • Google logo
  • Yahoo logo
  • LinkedIn logo
  • Digg logo
  • StumbleUpon logo
  • Technorati logo

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.

Follow Us

Facebook Youtube Twitter LinkedIn

 

Mobile apps

 - live trading 24/7

 - buy & sell instantly

 - up-to-the-second charts

 

 

 

Daily news email
Go to 'communications settings' 

Get the latest daily gold price news free by email

Latest gold news by email

 

 

 

Gold Investor Index
2 March 2021

Silver Investor Index

Silver beats gold again

 

 

 

LBMA webinar
21 January 2021

LBMA

London gold trading

 

 

 

Bloomberg TV
1 February 2021

Bloomberg TV

r/silver-surge

 

 

 

ET Now
3 March 2021

Gold drop

Gold's big drop

 

 

 

  •  Email us

Market Fundamentals

  • Central-Bank Gold Buying 'Moderate' But 'Highly Symbolic' in 2021
  • Green Energy: Platinum Key to New 'Hydrogen Catapult'
  • 2021 Gold Price to Rise 11.5%: LBMA Forecast
More...
  • Cost calculator
  • Cookies
  • Terms & conditions

©BullionVault Ltd 2005-

  • Twitter
  • Facebook
  • LinkedIn
  • YouTube

Save your cookie preferences

We use cookies to remember your site preferences, record your referrer and improve the performance of our site. For more information, see our cookie policy.

Please select an option below and 'Save' your preferences.

Save

You can update your cookie preferences at any time from the 'Cookies' link in the footer.

Secure auto-logout warning

You have not been active for some time.

For your security you will be logged out in   minutes unless you take action.