Gold News

Gold Steady in Dollars, Gains in Sterling as UK Budget Announces Record Debt, Outstrips IMF Crisis

Gold Prices held in a tight range in London on Wednesday, trading $10 below yesterday's one-week high at $885 an ounce for US investors.

European equities turned lower after news of sharp profit-drops at Boeing and AT&T, while crude oil held its breath below $47 per barrel as traders waited for today's US stockpile inventory report.

Government bonds ticked lower across the board, pushing UK gilt yields sharply higher as the New Labour government – which famously kick-started This Decade's Bull Market in Gold by selling half the nation's reserves at rock-bottom prices in 1999 – said its net borrowing will reach one-eighth of GDP in 2010.

Already four times higher from 1999, the Gold Price in Sterling regained Tuesday's two-week highs at £614 an ounce as the Pound fell hard, down 2¢ to a new low for April.

By 2015, the Treasury forecast, Britain's outstanding debt will equal some 79% of the annual economy, the worst level since World War Two and greater than the level which forced the last Labour administration to seek IMF aid in 1976.

For 2009-10, the government will issue a record volume of new gilts – perhaps up to £260 billion ($377bn) – resorting to "syndicated sales" through commercial banks in a bid to avoid a buyers' strike.

New data meantime showed UK unemployment rising to its worst level at 2.1 million since May 1997, when New Labour came to power.

Chancellor Alistair Darling meantime hiked the duty charged on petrol, and raised the top-rate of income tax to 50% while vowing to cut pensions-tax relief on incomes above £100,000 per year ($144,500).

Much harsher tax hikes now look certain to hit middle- and lower-income families, commentators agreed with the Tory opposition, after the 2011 election.

"[Entrepreneurs] are just bled dry of cash," the Financial Times this week quoted Paul Tustain, founder of online gold market BullionVault – which just received the Queen's Award for Enterprise 2009: Innovation.

"We are stuck with an environment that [threatens to] cripple us."

On the monetary front today, and ahead of the British government's record peacetime deficit plans, the Bank of England said money-supply growth in the UK slipped one per cent in March to 17.6% year-on-year.

That compares with the quarter-century average of 10.5%.

The Bank attributed the growth to "strong increases" in banks' internal deposit and lending business, "including securitization special purpose vehicles."

Over in the wholesale precious-metals market, meantime, "Gold is finding it increasingly hard to break above $890," notes Walter de Wet at Standard Bank here in London today.

"While scrap selling has dried up, buying activity in the physical market has not picked-up substantially. But ETF Gold Buying continues."

"Gold continues to have very little direction of its own," agrees today's note from London  gold dealers Mitsui.

"The market is seeing extremely low volumes traded and the inverse correlation with equities remains very strong."

Looking further ahead for Gold in 2009, however, "The characteristics of gold make it a good hedge in the face of current economic uncertainty," says Alex Hoctor-Duncan, head of retail sales in London for BlackRock wealth management, quoted by Bloomberg.

"The growing wealth of emerging economies is likely to support jewelry demand in the future, while financial turmoil and inflationary pressures underpin investment demand."

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum 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 he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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