This week's article is from guest writer Mr Mat Jenkins, who elaborates on a topic close to his heart; Brexit. He explains why he feels that this presents a golden buying opportunity for precious metal investors.
Here's what he had to say...
At the beginning of the year, precious metal prices had a very bullish outlook. With the current state of Brexit and the US economy, these economic conditions are heavily influencing the prices of precious metals. This presents a golden opportunity for precious metal investors as a terrific time to buy. Let me explain why I believe this to be true.
A lot of people believe that a deal between the UK and the EU is still very possible. With March 2019 still a little way off, the price of precious metals doesn’t reflect the possibility of a collapse of negotiations between the two.
With the US and the EU recently agreed to avoid an all-out trade war, this also greatly diminishes the UK's pulling power to work out a fair deal, (BBC News, 2018).
With the Bank of England raising interest-rates, this would normally signal a strengthening economy, right? WRONG! A central bank does not require good data to increase rates; it can also be common practice to increase rates in an effort to keep inflation under control, (Reuters, 2018).
Can you imagine if the price of gold and silver was pegged to the pound? It would be sky high! If the UK and the EU were unable to work out a deal, the prices of precious metals would leap. As you can see based on this graphic, over the last five years, gold has strengthened against the pound but weakened against the dollar. This shows that both currencies are at polar opposites to each other.
On the other side of the Atlantic is the USA. On the face of it, the economy is booming with strengthening high consumer and business confidence. There are, however, some warning signs. The loosening of regulations, lower tariffs and an increase in government spending. (CNBC, 2018)
These are the three main catalysts for the positive sentiment surrounding the US economy when in actual fact, it should signal red flags.
According to Michael Howell, chief executive officer at global research group Crossborder Capital, as monetary policy tightening takes place, there could be strong consequences for credit markets.
Speaking to CNBC, Howell says:
“Our concerns are, looking over the next 12 months, looking into the U.S. economy (in) 2019, it looks as if a credit problem may be emerging and that's what the yield curve is principally telling us. I think there are risks in credit, (because) there's been a huge spiraling of credit issuances over the last few years; a lot of companies have gone outside of banks to raise money and those deals have been priced very aggressively. Look at spreads, they are very tight - they shouldn't be as tight as they are."
Some believe it is also a sign of an attempt by Russia to destabilise the USD, (CNN, 2018). Although not confirmed, this could be used to purchase more gold.
“Russia has rapidly sold off the vast majority of its stash of American debt. Between March and May, Russia's holdings of US Treasury bonds plummeted by $81 billion, representing 84% of its total US debt holdings. It also sparked a guessing game about Moscow's motivations. Maybe Russia just wanted to diversify its portfolio, as the central bank stated. Or perhaps Russia was seeking revenge for Washington's crippling sanctions on aluminium maker Rusal.”
The US economy is growing at such a rapid rate that it could be considered a bubble economy, (CNBC, 2018). When the bubble pops, as many predict it will, there will not be a bandage big enough. I am convinced that the US economy will be trying to heal itself long after Trump has gone.
“A 'Market Economy' is an economic system in which the decisions regarding investment, production, and distribution are guided by the price signals created by the forces of supply and demand. Prices for goods and services can rise far above actual values and continue until investors realise just how far prices have risen, (usually, but not always) resulting in a sharp decline. 'Bubbles' usually occur when investors, for any number of reasons, believe that demand in the economy will continue to rise far beyond what is sustainable.” - Financial Dictionary
With all of the month's activities, we're on the edge-of-our-seat as to what could happen next. Make sure you've financially safeguarded yourself and your family using precious metals now before things get even worse. During this typically quiet time of year, and with all the factors pushing prices down, the summer has presented a golden buying opportunity for all precious metal investors.
The writer Mat believes that prices of gold and silver are expected to increase as the chance of a 'no deal' scenario becomes ever more likely and the patterns of the past week would indicate this becoming a reality. Bleyer have a growing community of purchasers eager to secure a portion of their wealth by buying precious metals at this present time in anticipation of rising prices in the future.
The team are in the office over the summer and look forward to taking your call, as you've hopefully taken advantage of a break in work, combined with the slightly lower prices, to enter into the world of owning and holding your own physical Gold. Call the team on 01769618618.