This month there are so many flags being raised in political and economic arenas that I will discuss five shorter points in this month’s roundup, rather than focus on one or two topics. These will include:
- A Rise in UK Interest Rates
- UK Credit Rating Downgraded
- The BIS discovers $14 trillion hidden offshore debt
- Global Floods & North Korean brinkmanship continue
- London House Prices record biggest fall since 2008
1. A Rise in UK Interest Rates:
Don’t worry, it hasn’t happened yet! On 14th September, once again, the Bank of England committee voted to keep the UK interest rate at the current 0.25%. Even typing that figure seems absurd to someone not born in the last twenty years. Here are some figures to prove that view: “The Interest Rate in the United Kingdom averaged 7.68 percent from 1971 until 2017, reaching an all time high of 17 percent in November of 1979 and a record low of 0.25 percent in August of 2016.” (Trading Economics)
Frankly, I’ve been amazed interest rates have stayed so dangerously low for so long. It gives a person an extremely false view of their real economic health. So, the following announcement wasn’t a surprise:
“A member of the Bank of England’s rate-setting committee has fuelled speculation that interest rates could rise as soon as November. Gertjan Vlieghe put forward the arguments for a rise in rates “as early as in the coming months” in a speech to economists in London.” (The Guardian)
What might this mean for Gold?
Typically, as interest rates rise, investment money tends to move away from Gold – which is argued produces no interest – into interest related products. But, conversely and simultaneously, rising rates increase defaults on all forms of credit, causing increased financial instability among sectors of an economy. And Gold favours uncertainty. As Physical Gold is an asset normally “held long” over a number of years, it is logical to brush off any initial fall in investment demand as interest rates start to rise, to ensure one is holding Gold as the economic health of an economy then increasingly feels the strain. And the economy to which I refer no longer includes just our own because we are – still – so intertwined with the failing economic health of the euro zone. Although I’m not going to focus on them in this month’s piece, the debt mountains of Greece, Italy, Southern Ireland (an EU member), Portugal, Cypress and Spain have been increasing exponentially every day.
2. UK Credit Rating Downgraded by Moody’s:
“The UK's credit rating has been cut over concerns about the UK's public finances and fears Brexit could damage the country's economic growth. Moody's, one of the major ratings agencies, downgraded the UK to an Aa2 rating from Aa1. It said leaving the European Union was creating economic uncertainty at a time when the UK's debt reduction plans were already off course. Downing Street said the firm's Brexit assessments were "outdated". The other major agencies, Fitch and S&P, changed their ratings in 2016, with S&P cutting it two notches from AAA to AA, and Fitch lowering it from AA+ to AA.”
Before a panic ensures two facts are crucial to grasp. Firstly, someone from the BBC wrote the above. Since March a cross party group of our own elected MP’s have been calling for partiality on Brexit “reporting” at the BBC. This is now hardly news to anyone who has read their slant. “A study in March found that just one in six contributors to the Radio 4 Today programme’s business news slot in the six months after referendum saw the result as positive for Britain. One MP who was present at the meeting with Mr Harding told the Sun: "This was about how we make sure there is a more positive light put on Brexit over the next two years. The main thing is looking for a code of practice or new guidelines to ensure that the BBC is impartial." (The Telegraph)
We predicted that our democratic choice to leave the failing euro zone project would be posthumously blamed for ALL future economic woes, when no evidence for that is even remotely given in the BBC opinion piece. Why am I still surprised? An eternal optimist I suppose.
The second point to question is the impartiality and economic expertise of the “experts.” For a humourous take on credit rating agencies, watch this 4-minute clip from The Big Short. (Please be advised the language is strong in this clip.)
What might this mean for Gold?
Just because I might not take someone’s opinion very seriously, in relation to my own choices, doesn’t mean other people won’t. Expect less credit lending based on these “expert” opinions. This means an increase in nervousness with the markets, which in turn then favours a rise in the price of Gold.
3. The Bank for International Settlements discovers $14 trillion of debt offshore, hidden in 'footnotes’
Wow. What a month! How does that even happen? It’s so suspect it makes the mind boggle. The scale of ‘hidden’ debt added to the already mind-boggling figures of debt held by the US is enough to make anyone run for the hills! Seriously, though, safe haven precious metals thrive in global economic uncertainty and currency collapses.
4. Global Floods & North Korean brinkmanship continue:
I covered these two topics in August’s Monthly Update and the affect on Gold and Silver. As these two situations are sadly ongoing, and the latter is increasing in rhetoric and danger – particularly in today’s Stateside news - please click here to read that piece.
5. London house prices record the biggest fall since 2008
Six days ago the Evening Standard announced: “The London property market is at its slowest in eight years with a third of owners selling their homes for less than their original asking prices, experts warned today.”
I highlighted this coming price correction back in July, writing on: “the coming property market price correction.” I explained that “I call it a correction, not a crash because a crash implies a sudden awful surprise. But, in truth, when an asset’s value is as over-priced as the property market is now, that price has to correct at some point. A property crash can ruin lives but, tragically, it is foreseeable.”
What might this mean for Gold?
Gold is a historical asset in which to move one’s wealth, as a property crash approaches. In fact, the Gold price is usually an oscillating price wave in the opposite direction to property, so the potential for great gains - as one market crashes and the other rises - are real and present.
Call the Bleyer Team on 01769 618618, email [email protected]and browse the Bleyer website to purchase Physical Gold and Silver bars and coins.