What a momentous week. I am frankly glad there has now been five days for things to settle, before even attempting to write a piece for our readers.
A few months ago, we wrote that Gold and Silver would be wise investments, both in the long term, whether the U.K. stayed in the E.U. political and fiscal union, or whether Great Britain gained her independence. That is because many, many people understood that change would bring a period of short term uncertainty.
True to form, Gold and Silver act as a safe haven in times of transition. Gold is up 14.73% over the last week, or £126.84 an ounce while Silver is up 16.05% or £1.89 an ounce. I expect the price of Gold and Silver to remain buoyed now for some time. That is not investment advice but just an opinion. I base this opinion on the fact that European markets will suffer due to the strongest economy within it leaving the equation. This is logical. If the U.K. paid 12% of the EU budget on our own before we left, the now 27 member states of the eurozone are now going to have to make up the difference to their own budget.
The Gold and Silver paper price is, in many ways, based on global perceptions of events, not necessarily the events themselves. This is borne out by the following statistic:
“Google reported that the number of internet searches for the phrase “buy gold” spiked by 500pc as the results trickled through around 5am. Investors flocked to the safe haven asset during Asian trading.”
So, based on global eyes looking in at the economies of both the eurozone and Britain separately, I expect to see the weaknesses as many eurozone markets rise to the surface the more Britain extricates herself from the economic and political regulations of the EU and European Central Bank. (More on this later.) Over the coming months I expect will be off-set by a steadying, digging in and rising of the British economy:
“Good morning,” writes the constantly updating Business Section live stream from The Telegraph at 7:25 am, “and welcome to another day of live markets coverage following the UK’s decision to leave the European Union. The FTSE 100 is set to open 1pc higher this morning after gaining 2.64pc, or 158.19 points, to close at 6,140.39 yesterday – its biggest one-day gain in four months.” In fact, the bounce back is currently now double that at 2% (29/06/16)
Mike Van Dulken, Head of Research at Accendo Markets twitted this morning that “UK bank shares are laughing in the face of the Moody downgrade.”
However, who’s to say things won’t get a little bumpy over the coming days, weeks or months. Transition takes time. So, to steady the mind, I thought it would be really helpful to our clients and readers to take a quick look to another country which held a EU Referendum, and learn from history. In 1992 Switzerland held a referendum on their membership of the E.U. They voted 50.3% to 49.7% against joining the eurozone. Our four point difference is huge compared to their result. After a short period of very similar public reactions from a small portion of their population who did not vote leave, Switzerland knuckled down, rode out a short period of economic white waters and has risen to become the wealthiest economy in Europe in terms of both employment and exports, without actually being in the EU at all.
What was the Swiss reasoning? Much the same as Great Britain’s: “Have the arguments against EU membership been the same in these referenda? They have been quite similar. The opponents cautioned against limits on direct democracy. Membership of the EU was identified with loss of the right to referenda and citizens’ initiatives (Mahon, Miller, 1998, p. 449–450). Switzerland faced an external identity crisis. The EU has begun to develop into a loose, multinational confederation.” (pg 10, University of Bialystok, “Swiss Referenda on European integration“)
In 2016 Switzerland continues to be “neither a member of the EU nor of the European Economic Area” and does not accept freedom of movement as any part of its international free trade agreements.
The small group that write and run the mainstream media is behaving as such a disappointingly political animal at present that it is helpful to zone out the noise and look at the purely academic, factual and historical nature of economics. This is why I have quoted above from an academic paper, not a newspaper outlet, written on the study of Switzerland’s relationship through her referendums on the EU – and there have been several, to all of which she has said “No.” And I have not chosen a paper written by a Swiss but by a Polish academic, just for a non-partisan view.
So, where is the Swiss economy now? (extracts from a 6 minute video interview)
“Zurich is the wealthiest city in the world, ranked as having the highest quality of life in the world. We’re told we need to be in the EU for trade. But Swiss exports per head are five times higher than ours (pre-Brexit Britain). In fact, they’re about the most successful exporting nation in the world.
Then we’re told we need to be in the EU for jobs. But [Switzerland] has a very high labour market. 83% of all people of working age work. That’s much higher than the rest of Europe.” Beat Kappeler, a European Economist, shares the following economic facts: “Switzerland has one of the lowest unemployment rates in the world, lower than any country in the EU.”
“Just look at the most valuable companies in Europe; Natvatist, Roche, Nestle, they’re all Swiss. Europe’s biggest companies aren’t even in the EU. Zurich is also one of the world’s largest financial centres, despite having a population of less than two million, with global firms like UBS and Credit Suisse. The Swiss are better paid than British citizens, with average wages again around twice as high as ours (£67,025 to our current pre-Brexit figure of £38,335) What’s more, there is far greater income equality in Switzerland. So, without the EU’s help, the Swiss seem to be scrapping along just fine.”
Editor of Swiss Magazine, “The World This Week”, Roger Kopple, believes: “The reason why Switzerland is successful economically is that Switzerland is not a member of the european union. In the EU its bureacrats and politicians determine what the people have got to do. I mean, its a top-down system in the EU and Switzerland is, I would say, the epitome of a bottom-up system. Too much regulation stifles innovation and limits creativity.”
Allister Heath, Deputy Editor, The Telegraph, a British voice, agrees with this logic: “Switzerland is the perfect opposite to the european union’s crumbling model.”
Kappeler, concurs, concluding that:”It is [in Switzerland] very different to the elite conception of politics, where an enlightened elite decides and knows better. Here (in Switzerland) people know better and the politicians have to conform.” Kappeler isn’t just an Economist but Professor for social policy at the Swiss Graduate School of Public Administration in Lausanne, plus a widely published author within european politics and economics. He is making the point which even, bizarrely, the EU itself agrees with: “The Swiss economy ranks as one of the least regulated in the world. And according to the EU itself, Swiss industry is also the most innovative.”
Britain has similar voices of political and economical study, to which I would much rather listen and from which I would much rather learn, than the current cacophony of main stream media, no disrespect to the few actual journalists who are non-partisan and impartial based on true facts; not fiction presented as fact. That doesn’t help our readers to navigate the way forward with their own personal wealth and incomes.
One such voice is a British now ex-MEP called Daniel Hannan. A widely published author, Hannan’s “How We Invented Freedom and Why It Matters” became the 2014 Winner of the Political Book Awards. Hannan states in an interview in The Spectator back in January 2016 that:
“To summarise, then, Norway gets a better deal than Britain currently does, and Switzerland a better deal than Norway. But a post-EU Britain, with 65 million people to Switzerland’s eight million and Norway’s five, should expect something better yet. The deal on offer is based on free trade and intergovernmental co-operation. We’ll recover our parliamentary sovereignty and, with it, the ability to sign bilateral trade deals with non-EU countries, as Norway and Switzerland do — an increasingly important advantage when every continent in the world is growing except Antarctica and Europe. We’d obviously remain outside Schengen.”
The Way Forward and a few points to look for: Keep looking at interest rates. Gold and Silver are especially attractive investments in times of either low interest rates or hyper-inflation.
Today, the Federal Reserve announced it was not rising its interest rates. I would have been surprised if it had but even so, the announcement signals a consolidating shine for Gold and Silver.
And in Britain, “In the not too distant past, all the talk was of when the Bank of England might vote to raise the base interest rate, after almost seven years of a record 0.5 per cent low. Markets have fully priced in a rate cut by the end of this year. Rates aren’t expected to rise again until November… November 2020, that is.”
Many may remember George Osborne talking about mortgage costs rising post-Brexit, predicting the pound would slump and prompt higher import costs, spiralling inflation. But the opposite is being considered.
“The likelihood of a rates cut by the end of the year is set at 80 per cent – and there is even a 15 per cent chance that by 2017, rates will be negative.” (The Week, 28 June 2016)
That, we expect, will continue to be a boost for Gold and Silver prices. And of course, we would suggest that a time of low interest rates is a time for paying off or down as much debt as possible, not incurring more. This is because global history and fiat currencies have a pattern, completely devoid of any one countries referendums etc and that pattern is: inflation, deflation, hyper-inflation. It’s as old as the empires of Rome.
Of course, what is great for Gold and Silver and paying off our mortgages quicker, is not so great for pensions and savings.
A few years ago, the law changed to allow widespread investment in Gold in one’s pension. Call one of the Bleyer Team to talk this through. It is relatively straightforward to set up and you remain in control of your investment and pension pot. It’s just that instead of your pension pot being exposed to the stock market, it changes to hold some Gold within that pot.
If you are a UK citizen, you can invest in Gold Bullion through your Self-Invested Personal Pensions (SIPPS). SIPPS are personal pension schemes containing a basket of investments of your choosing until you retire and start to draw a pension income. SIPPs can hold tangible investments, which can now include Physical Gold. Investments made in gold bullion are topped up in the form of tax relief, meaning individuals can claim back the tax on the money they put in. The amount varies depending on the income tax band into which they fall, so if you are a higher rate tax payer you can get up to 40% back. So, for example, a £10,000 investment will only cost you £6,000.
Physical Gold is allowed in a SIPP providing it is investment gold, as defined above. The bullion must be stored at ‘arm’s length’ with a secure third party. It cannot be taken possession of and used as a “pride in possession” article. It can, like any other investment, be sold within the pension wrapper and then the cash re-employed within the normal rules of a SIPP pension. Thus Physical Gold is allowed in your SIPP when Bleyer Bullion store it for you but it at all times remains YOUR GOLD in YOUR ALLOCATED ACCOUNT. When you come to take your tax free lump sum or drawdown from your pension, this can be taken in physical gold, rather than cash if you like.
Please take a look at this article from our archive which covers some of the detail you may need to know if you are considering a gold pension. What you need to know…
Please call one of the Bleyer Team to find out more. You are in complete control in instructing an Independent Financial Advisor (I.F.A.) and a Trustee Company will manage your SIPP Pension as a whole. You will instruct us to either communicate directly with you or with your I.F.A. / Trustee, whichever you would like. If any fresh funds are paid into your pension then they will claim the tax rebate element that may be due to you and add it to the pension sum. Once contributions have been made to a pension, you cannot withdraw funds until the age of 55 but you can change the investments and move provider.
To begin setting up your Gold pension give our helpful, professional team a call during office hours or send us an email. Telephone: 01769 618618, Email: Sales@Bleyer.co.uk
Note from Caroline Peers, C.E.O. of Bleyer: “If you want to go ahead and make the move you should know that any expenses could be paid out of cash, provided that there is sufficient being held. You will need to allow for storage charges and I should also remind you that although it can appreciate hugely in value, gold as an asset, does not generate any income so you will have charges to fund from time to time out of new contributions.”
Gold as part of SSAS Pensions: This small self-administered scheme (SSAS) is an occupational pension scheme set up under trust with fewer than 12 members. Like SIPPs they are generally administered by an independent trustee who is well versed in legislation and HM Revenue & Customs (HMRC) practice. The types of assets that the scheme can purchase are similar to that of SIPPs but there are added benefits that can be useful to companies so that they can gain additional benefit from their pension assets. Gold bullion is included in the list of assets that a SSAS may hold. We are happy to work with your trustee in procuring and storing gold for your SSAS Pension. Please call us on 01769 618618 or drop us an email to discuss any aspect of this.
So, apart from pensions and low interest rates, what else would we recommend our readers keep an eye on?
For years, we have been writing to our clients about the coming economic collapse of the eurozone. Immediately the news broke that Great Britain is leaving the eurozone, the weaknesses within that zone begun to rise to the surface. Make no mistake, they’ve always been there, since the inception of a poorer southern europe being sustained by injections from the richer northern european nations. It’s just that in such times, those weaknesses now have no where to hide. This was written by the London School of Economics and Political Sciences back in 2013:
“While attention on the Euro crisis has been focusing primarily on Greece and Cyprus, it is no mystery that Italy, alongside with Spain, constitutes the real challenge for the future of the common currency, in any direction events will be unfolding. In the relative silence of the international press, Italy’s macroeconomic situation has been showing no sign of improvement, and indeed numerous indicators portray a national economy which finds itself in a depression, rather than in a however severe recession. It is no overstatement that the Italian economy is currently collapsing.
Italy is the third largest economy of the Eurozone (after Germany and France), holds the largest public debt (over €2 trillion), which has been growing at an astonishing pace, even in more recent times and particularly as a ratio to GDP (130%), since the latter is contracting fast. How is this sustainable? Well, it is not. But for the moment, thanks to the ECB direct interventions (€102.8 billion of Italian bond purchases in 2011-12) and especially to the LTRO mechanisms, the finances of the Italian state can still be kept afloat. Italian banks have been absorbing €268 billion of liquidity issued by the ECB by means of the LTRO programme. In its essence, the mechanism is the following: because the ECB cannot lend liquidity directly to the states, except in times of absolute emergency and for the stabilisation of financial markets in the short term (as happened in 2011), it lends money to the banks, which in turn purchase government-issued bonds.” (London School of Economics and Political Science.)
What is Italy’s GDP to debt ratio now? This was written on 29th May 2016, so pre-Brexit: “Italian total real economy debt (that is, government, household and business) is around 259 per cent of GDP, up 55 per cent since 2007. France’s equivalent debt is around 280 per cent of GDP, up 66 per cent since 2007. This ignores unfunded pension and healthcare obligations as well as contingent commitments to Eurozone bailouts. Debt will increase in critical levels quickly without corrective action.” (The Independent, “France and Italy could be the next European economies to crash.”) The euro ship is sinking and Great Britain would be wise to paddle, with all hands on deck, away from the suction of catastrophe as rapidly as we can. All these economic facts are indicative of previous historical events and wealth cycles that fed into the rise of Gold and Silver as financial safe havens.
Browse our website now for Gold and Silver bars and coins now and call one of the Bleyer team to find out more about holding your Gold in a Pension, safes and secure storage and our current special offers.
In conclusion, I’ll leave our well-researched readers with a quote from a delightfully refreshing article by Sarah Vine, the wife of Michael Gove, which – regardless of how we voted – sums up the great British spirit. Upon being woken at 4:45 am to hear that Vote Leave had won, Gove put on his glasses and said: ” ‘Gosh,’ he said. ‘I suppose I had better get up.’ May we as a nation now put on our metaphorical glasses, focus, get up and work together for our:
Sovereignty: repatriating our laws
Security: stopping free movement of people but welcoming limited controlled movement of high quality labour
Productivity: working hard together, whether our skills are in the arts, commerce, building houses, education, running community centres, raising children, in putting all our talents into blossoming this nation’s GDP
(And rewarding ourselves with a few Swiss chocolates while we’re at it!)