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Counterparty Risk: Risky Business…

The global spread of counterparty risk

Before the demise of Lehmans, AIG and the collapse of thousands of other financial powerhouses – the words “Counterparty risk” was generally used as more of a conjectural concept. Today the phrase is used to describe both the cause and effect of our global financial status-quo. Counter-party risk reduces confidence in financial instruments. Savings accounts, government bonds and low risk equities are now seen as a matter of last resort owing to its higher risk and lower reward reputation. The literary meaning of a savings account defies the purpose in which it should be used. It’s difficult to save if the level of return is less than the rising costs of living. It’s impossible to save, if the institution responsible for holding your savings has ceased to exist. The phenomenon of counter party risk goes beyond possible and now exists in a wide and spreading sphere of probable.

People can lose money in financial instruments regardless of the vigour of their investment.

Third party ownership of assets creates counterparty risks

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Owning an undervalued mining stock with great earning potential and little (perceived) downside risk still attracts the prospect of a board of directors manipulating its value. Equally, its bank’s reluctance to lend money and/or inflated borrowing rates has contributed to the demise of many companies over the last few years.  Whilst Gold ETF’s track the price of physical gold – if a large proportion of holders were to sell their holdings, there wouldn’t be enough physical gold to cover peoples’ investments.  The most prevalent example of counterparty risk is buying a low yielding government bond in Greece 7 years ago, only to discover that investors were forced to write up to 50% off their investments.

In order to save money, you need to be earning more than inflation (3.6%) in addition to any currency devaluation. In order to have themoney you need to ensure you have minimised counterparty risk by taking ownership and possession of the investment you have bought. Precious metals are an obvious example of this with the population turning to gold in times of austerity. Often the causes and effects of counter-party risk are the same:

Causes & Effects of Counterparty Risk

  • 3rd parties taking uncalculated risk’s
  • Exposure to debt in weak markets (e.g. Greece)
  • Cost of borrowing increased
  • Overall confidence diminished – reduces amount of cash and/or investment in entity
  • Legal wrangling and unfavourable settlements diminish profit (e.g Payment Protection Insurance)
  • Foreign Exchange exposures prevalent in uncertain markets
  • Exposure to rouge traders

How physical gold investments beat counterparty risk

Physical gold is considered to be a safe bet. Several factors in the financial markets established physical gold investments as a safe asset class. One of the prominent factors is the lack of counterparty risk. As explained earlier, counterparty risks exist when the fulfilment of an investment is dependent on a third party. Stocks and shares of listed companies depend on the performance of that company. In order to generate returns, the stock must perform well in the equity markets. However, holding gold in its physical form nullifies this risk, as the asset is owned and controlled by you. Many people enquire about the advantages of buying gold in its electronic form. This is otherwise known as a gold ETF.

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Many investors do not realise that gold ETFs are equally subject to counterparty risks. In many cases, the company that issues the ETF sells large quantities of the paper investment, without ensuring that it is appropriately backed by sufficient gold holdings. As a result, if several investors wish to call back their investments, it becomes impossible for the company to fulfil the payback. In this way, almost every investment vehicle that is linked to the global capital markets carry counterparty risks. The only way to nullify these risks is to own immovable or tangible assets like gold, silver, real estate, etc.

Counterparty risk
All kinds of physical gold, including jewellery, mitigates counterparty risk

Will counterparty risk continue to rise?

The last financial disaster of 2008 witnessed the demise of large financial institutions like Northern Rock and Lehman Bros. Once again, 12 years down the line, the world is poised to face another possible financial debacle. Government debts are on the rise in several developed economies around the world. The collapse of the Greek economy in 2008 was partially due to the country’s government debt being disproportionate to the GDP.

Currently, China’s government debt is estimated to be 300% of the country’s GDP. If we look at the world around us, we realise that increasingly, companies and financial institutions are declaring bankruptcy. In the UK, there is a real risk of a housing market collapse. Downward adjustments of credit ratings are on the rise. Additionally, there is economic uncertainty created by political events like Brexit.


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All of these factors will continue to put pressure on the global economy and create a toxic situation that could result in yet another global economic crisis. This will lead to a significant decrease in the number of counterparties that are willing and able to take on the risks of global institutional investors. Many watchful investors have already started moving their investments to gold. The current spot price of gold has risen to around $1600 and continues to rise, inching closer and closer towards the all-time market high of 2011. Clearly, investors are moving to the safe haven of gold.

Call us to discuss how you can protect your investments

At Physical Gold, the investment advice we impart to investors like yourself is backed by research on the global economy, capital markets, bond markets, commodities and precious metals. Our advisors are best placed to guide you on how to minimise your risks. In the current economic climate. Call our team on (020) 7060 9992 or get in touch with us via our website. We can help you build a safe and robust precious metals portfolio that can protect your investments.

 

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The Impact of Brexit on Gold Prices, UK Politics and the Economy

We last wrote in detail about the topic of Brexit in August 2017 and it’s an understatement to say that a lot of water has passed under many bridges since then! So, another article is well overdue, so please read our views on “The impact of Brexit on Gold Prices, UK Politics and the Economy”.  As we are UK-based, this article will have a UK-perspective. All assumptions are as at 29th November 2019 – opinions and facts change daily (it seems) – but this was our viewpoint at the time of writing!

What is Brexit?

Everybody knows about Brexit, but we thought it would be a useful start to define what Brexit is. To do this, we have used the Cambridge English Dictionary definition:

an exit (= act of leaving) by the United Kingdom from the European Union (short for “British exit”)”.

Impact of Brexit on Gold Prices
Brexit – the act of leaving the EU by the UK

This BBC article is also very interesting about the rapid adoption of the word “Brexit” into the English language along with words such as Brexiteer.

A full Brexit involves leaving both the single market and customs union. We discuss the different ways Brexit could be implemented next.

The different varieties of Brexit

There is no “one size fits all” for Brexit. This is one of the reasons that the UK parliament has struggled so much to vote Brexit through. We list below the different varieties of Brexit and in particular the implications they have for gold investment.

Impact of Brexit on Gold Prices
Whatever your Brexit preference to many it’s all a big nightmare!

1)    No Deal

Although UK PM Boris Johnson has agreed on a deal in principle with the EU a no deal is still very much a possibility. The UK could still complete Brexit without a deal if the withdrawal agreement is not signed off by January 31st, 2020 or by December 31st, 2020 (the end of the transition period). A no deal is looking much less likely (than it was at one stage), but if the Conservatives won by a significant parliamentary majority in the December election the chances of a no deal would increase.

In the event of a no deal, there would be PHYS01_Animated_Gif_2_MPUthe greatest amount of uncertainty and disturbance to markets, UK trade would take place under WTO (World Trade Organisation) rules. A no deal would initially leave the UK in an isolated and vulnerable trade position. UK businesses would become less efficient and would trade with lower profits due to tariffs, work visa restrictions, increased regulations, supply access, etc.

Markets hate uncertainty, a no deal Brexit causes the highest amount of uncertainty possible. If a no deal Brexit happened the likelihood would be a surge in demand for gold, which would snowball as investors sought a safe haven investment. The price of £ sterling would also be very likely to fall at this point.

Impact of Brexit on Gold Prices
A hard or no deal Brexit will feel like a gamble to many investors, they are likely to turn to assets like gold

2)    Hard Brexit

This is a deal based Brexit where the UK leaves the EU entirely, there would be no freedom of movement for workers and the UK would not have access to the single market. A hard Brexit is favoured by many Conservative MP’s but was difficult to negotiate with the EU. The harder the Brexit the more likely a no-deal scenario became.

From an investment perspective, a hard Brexit would again create uncertainty. Investors would be very likely to sell UK company shares and seek alternative safe haven investments such as gold. As a currency, £ sterling would weaken following a hard Brexit. The British economy would struggle for a period until new international trade deals could be negotiated with the EU and the rest of the world. Investments in the UK would reduce, so attracting capital would be likely problematic for a period.

Although a hard Brexit would cause an increased demand for gold, this spike in demand would be much less than a no-deal scenario would cause.

Impact of Brexit on Gold Prices
A hard Brexit is a favoured option of many Conservative MP’s

3)    Soft Brexit

This once again is a deal based Brexit where the UK leaves the EU but remains a part of the EU single market. This is the part of the EU, which allows the free movement of goods and people within EU member countries. This variety of Brexit is favoured by some Conservative MP’s as well as those of opposition parties.

The only realistic scenario for a soft Brexit is if the Labour party won. Following a second referendum, it is considered quite likely that Labour party members would prefer a soft Brexit to protect workers jobs and cause as little disturbance to the UK economy as possible.

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A soft Brexit still represents the UK leaving the EU. This, therefore, creates uncertainty and a likelihood that some investors would seek a safe haven investment such as gold. The impact on gold prices of a soft Brexit would be somewhere between those seen of a no Brexit and hard Brexit.

4)    No Brexit

There is still a chance that Brexit may never happen! This would only arise if Labour, Liberal Democrats or a coalition government win the December 2019 election. This looks like an outside possibility as the Conservatives are favourite to win the election.

If the Liberal Democrats win the election, the results of the 2016 referendum would be ignored and the UK would stay in the EU. If Labour wins, there would be a second referendum where the UK would once again vote (often called “The People’s Vote) to remain or to leave. If Remain won this second referendum, then there would be no Brexit.


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A no Brexit scenario is actually pretty much “business as usual” and would cause if anything a slight reduction in the gold price as the outlook is more certain. The gold price would once again align with other global factors such as the US$ and other world financial influencers.

Impact of Brexit on Gold Prices
Whatever your views on Brexit if the UK leaves it is the end of an era

UK Elections – 12th December 2019

Largely due to the failure of the Conservative government to deliver Brexit, a general election was announced following an MP’s vote on 29th October, 2019. The election takes place on 12th December 2019. This is the first time there has been a UK December general election since 1923. We discuss the possible outcomes of the election below.

1)    Conservative party win – Conservative coalition

This is the most likely outcome, as the Conservative party are widely expected to win the UK election. They may not though have enough of a majority to implement their preferred Brexit and may need to enter a coalition government most likely with the Brexit Party and Democratic Unionist Party (DUP).

Depending on the majority the Conservatives hold they would implement either a hard Brexit or no deal (if a deal can’t be agreed with the EU).

10 commandments

2)    Labour party win – Labour coalition

This is a possible outcome with a coalition government appearing more likely than an outright labour party win. Labour could form a coalition with SNP (Scottish Nationalist Party) and/or Liberal Democrats.

With a labour majority, there would be a second referendum (a “People’s Vote”). This still has a high chance of a leave outcome, but with a Labour government in charge, the likelihood would be a soft Brexit. Both the SNP and Liberal Democrats want to remain, so any coalition with these parties by Labour would create problems for Labour actually leaving the EU.

The price of Labour forming a coalition with the SNP would be to allow a second Scottish Referendum vote. This in its own way creates future uncertainty and would possibly mean that Scotland could remain as an EU member or re-join if the UK has already left.

3)    Liberal Democrats win

A Liberal Democrats win is extremely unlikely. If the Liberal Democrats were to win an overall majority, they would keep the UK within the EU. This would have a stabilising effect on the gold price as the UK stays as it is now, this retains the “status quo” and breeds certainty.

4)    Hung parliament, minority government – nobody wins

There is a distinct possibility that after all the votes are counted that no party wins and there is a minority government (most likely Conservative but maybe Labour). In this event, Conservative or Labour are likely to seek a coalition government. Just before the December 2019 elections were called this is the situation PM Boris Johnson faced, which is why he couldn’t easily get his hard Brexit deal voted through parliament. Although a deal was eventually agreed, the timescales for it weren’t – so PM Johnson decided to call an election to sort the Brexit chaos out!

If all attempts to create a coalition government fail, then the UK will effectively have a hung parliament with no party able to effectively lead. This in itself would create great uncertainty in the UK and would lead some investors to safe haven investments such as gold.

For Brexit, a hung parliament would most likely mean further delays. With no government able to implement their policies, a no deal/hard/soft Brexit could not be agreed. Eventually, it can only be assumed that there would be another election to try all over again to get a majority government.


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Formal deadline for the UK to Exit the EU – 31st January 2020

It’s worth mentioning that the current deadline for the UK to leave the EU is now set at 31st January 2020. This deadline could be brought forward if agreement on a deal was reached by MP’s.

As a future date, the UK transition period for the UK leaving the EU concludes on 31st December 2020.

How Brexit impacts gold prices

1)    Breeds uncertainty – investors flock to safe haven investments

The whole Brexit scenario impacts gold prices through uncertainty. Investors love certainty and detest uncertainty. Due to Brexit, particularly in the advent of a no deal or hard Brexit, many investors (particularly those in the UK) will seek a safe haven for their investments.

Your Dictionary defines safe haven investments as:

An investment that people transfer money into in times of turmoil and market uncertainty. Gold, U.S. Treasury bills, notes or bonds, and the Swiss franc are some safe havens for money fleeing trouble.

We haven’t seen too much Brexit-related safe haven investment yet as Brexit is not classed as “imminent”. When/if Brexit happens, this is the point at which there is likely to be a surge in safe haven gold investment.

Impact of Brexit on Gold Prices
Investors love safe haven investments like gold in times of economic uncertainty

2)    UK Government investments “risky”

Investments in the UK government, e.g. bonds and gilts – although classed as a low-risk investment will lack appeal. Investors will seek alternative safer places to invest their funds, which would include foreign government investments and also in gold and other precious metals.

3)    EU single-market undermined and “risky”

Many political commentators are predicting a “ripple effect” following the UK’s decision to leave the EU, with other countries following (like “rats deserting a sinking ship”). This “ripple effect” hasn’t quite happened yet as the UK hasn’t actually left.

There is an impending fear though that Brexit could cause a fracturing of the EU leading to an eventual disintegration and an end to globalisation.

These factors are likely to lead to a lack of confidence in the EU by investors generally and for alternative investments to be sought. One of these would be gold.

4)    Equity investment risk for UK & European companies

Following the UK’s decision to leave back in 2016 there was a knock-on effect on UK equities. Following any actual UK exit, there would be a high likelihood of downgrading of UK equities and also European equities.

Upon Brexit occurring UK businesses would be faced with a range of new issues. There would be increased regulations and red tape, difficulty of access to migrant worker visas, new trade tariffs and also restrictions to parts and materials. All of these are likely to reduce the profitability of UK businesses (especially those with high exposure to import/export), which ultimately means these equities will be less attractive to investors. This will be the case especially in the short-medium term as the consequences of Brexit become clearer.

Impact of Brexit on Gold Prices
Passports would be one example of a potential regulation change following Brexit

The UK is a main market for many European countries (France and Germany especially). Therefore, the same issues impacting UK businesses will also impact some European businesses too in a similar way. Trade tariffs added by the UK/EU, for example, would impact businesses, which currently trade without such tariffs.

In a climate where UK & European businesses are less profitable and therefore less investable the inevitable outcome is that investors will seek other investments. Gold will be in a prime position to take advantage of new investment funds.

1)    Currency fluctuation

There will be some currency fluctuation of both £ sterling and Euro relating to Brexit, infact we have already seen this with past Brexit announcements.

Currency investors faced with an actual exit of the EU by the UK are likely to choose to hold their cash in liquid assets such as gold rather than £ sterling, which is riskier due to the Brexit process. Although gold worldwide is priced primarily in $, the price per oz in £ sterling can be expected to rise post Brexit due to a weakening of the currency.

Impact of Brexit on Gold Prices
Enjoy our word cloud of Brexit related words!

Contact Us

We appreciate that Brexit brings uncertainty and concerns to investors. If you would like to discuss any aspect of diverting investment funds into gold investment, then contact us by calling (020) 7060 9992 or alternatively complete our contact form. We will be pleased to help and can offer a wide range of gold coins, gold bars and silver investments.

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Caveat

Naturally, this blog represents the views of Physical Gold Ltd. We would always recommend that customer’s complete their own research and seek impartial investment advice before acting on any of the content in this article.

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Gold vs Paper Money – Which can we Trust More?

Gold versus Paper Money

It’s an interesting question, which do you trust more? We investigate gold and paper money in this article.

A brief look at fiat money

Fiat money is a currency, which includes coins and banknotes that are considered to be legal tender from any government. The term ‘legal tender’ basically implies that a government of a nation will fulfil a promise to pay the bearer of a bank note the exact sum of the amount of money represented by the note. So, it’s like a certificate. The concept actually came from a time in history when the bearer of a bank note could be paid an equivalent amount of a precious metal, which was normally silver or gold. The government decree authorising this move was called a ‘fiat’, hence the name. In fact, fiat money has been around as early as the American War of Independence, which dates back to 1775.

The end of the gold standard

Interestingly, due to a shortage of gold and silver at the time, the earliest forms of paper currency in the US was backed by real estate and tobacco. Tobacco warehouse receipts were issued as promissory notes, authorising the bearer to have a claim on the exact amount of tobacco. Later the colonial governments discontinued this practice and switched to backing the currency with land. Although fiat currencies gained popularity worldwide throughout the 19th and 20th centuries, in August 1971, the US government discontinued the gold standard and terminated the post-war Bretton Woods system, which maintained the position of the US dollar as an international reserve currency, which was backed by gold with a fixed price of $35 an ounce. By then, it had become impractical to justify a fixed price for gold as a commodity that was being traded actively in a vibrant global market.

Gold vs Paper Money
As more paper currency is printed, inflation erodes its value

The problem with fiat currencies

So, we can see that the very reason the gold standard was abolished was a growing lack of confidence in the US dollar. The balance of payments in the US deteriorated heavily, along with the US share of global output, as emerging economies prospered. The US would not have been able to make good their gold payments to uphold an already inflated dollar.


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Stability and inflation have always been an issue with fiat currencies. Today, currencies are traded in forex markets around the world and the dollar’s demand is upheld by its parity to oil. The dollar has made a good recovery in the last couple of months on the back of better interest rates announced by the FED and news of a recovering US economy. As the price of the dollar rises, Asian and African economies who need to buy the dollar at a higher rate to buy fuel, have been plunged into crisis. The price of petrol has gone up dramatically in these nations, pushing the entire cost of living up, through a knock-on effect. Paper currencies now buy far less in these parts of the world than it used to.

In our YouTube video, we discuss the importance of “Gold investment as part of a balanced investment portfolio”

Gold maintains its stability

Fluctuating interest rates across global economies, PHYS01_Animated_Gif_2_MPUcoupled with inflation are leading concerns for the stability of paper currencies worldwide. In a recent case of hyperinflation, Venezuela’s currency, the Bolivar has become so devalued that paper bags are being made out of it for tourists. In the case of gold, this can never happen. The precious metal has been a global commodity that locks in tremendous value for thousands of years. Whenever the threat of inflation and economic uncertainty looms ahead, we see investors quickly moving to gold to safeguard their interests.

Talk to our gold experts to know more about buying gold

At Physical gold, our precious metal experts conduct extensive research about how gold is performing across the world. They are able to advise you on how to build a robust portfolio of gold and avoid becoming a victim of inflation through investments in cash. Call us today on 020 7060 9992 or send us a message online, and a member of our team will be in touch with you right away to discuss your investment goals.

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Why Gold is a Safe Buy in Times of Economic Uncertainty

Economic Uncertainty is here to stay

Economic uncertainty seems to be a given in the times that we live in. Over the last ten years, economic uncertainty across the globe has hit record highs. According to a study conducted by the news network, CNBC in 2016, uncertainty has risen by around 60% in the last five years alone. These figures beat the uncertainty levels of 2008, which we all recognise as the peak of the global recession, spurred on by the US sub-prime mortgage crisis that sounded the death knell for big-ticket investment banks like Lehman Brothers and brought banks like Northern Rock to its knees. The recent spike in uncertainty was exacerbated by events like Brexit, which has had an impact not just in Europe, but across the economies of Asia, Japan, Oceania and the Americas.

The findings of the study revealed that uncertainty went up in the US economy by 19.8% between 2015 and 2016. During the same period, Brazil recorded a spike of 22.6%, China by 83.2%, Australia – 44.6%, France – 28.8% and India – 4.7%. However, the largest increase in uncertainty was recorded in the United Kingdom – 160%.

economic uncertainty
Uncertainty in global stock markets sees investors move their money to gold

How does uncertainty impact the economy?

Back in 1983, Ben Bernanke published a paper that attempted to model the effects of uncertainty on the economy. Bernanke, some you may recall was the Chairman of the US federal reserve at the time and also a professor at Stanford University. Bernanke observed that certain macroeconomic factors such as oil price fluctuations, monetary and fiscal policy adjustments and even the entry of new technologies were disrupters and triggered investors to move their investments across asset classes and global markets. Even more disastrous are geopolitical events like war and the threat of terrorism. In addition, the world is today threatened by the increasing incidence of natural disasters. A case in point is the 2011 tsunami that struck Japan. That tsunami alone caused losses of $360bn and is considered to be the most expensive natural disaster of all time.


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Why is gold considered to a safe haven during uncertainty?

Well, first of all, gold is a tangible asset that one can take physical possession of and store. Gold has been a creator of value since time immemorial. We are well aware that gold was used extensively as a metal of choice for coinage across the world throughout history. The value of gold, therefore, continues to remain stable, and demand for gold is driven by the value it commands in the eyes of human beings.

Gold is scarce and this is yet another factor that adds value to the precious metal. Rising demand and scarcity of supply creates an unbeatable value proposition that cannot be matched by other asset classes. While the price of gold may fluctuate, its intrinsic value in the eyes of an investor remains. On the other hand, stocks, bonds, debt papers, ETFs, and even cash deposits represented by fiat money, are only able to derive their value from the trading price in the market. They have no intrinsic value.

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Secondly, other investments are affected by inflation or rising and falling interest rates. Gold is well insulated from these macroeconomic forces. When we see gold price trends over the years, we realise that the price of gold moves inversely to the US dollar. This means when the dollar falls, the price of gold goes up. Therefore, investing in physical gold is a great hedge against inflation and can also create purchasing power for the investor in the years to come.

economic uncertainty
Holding physical gold can help beat uncertainty and inflation

At times of economic uncertainty, several investors may start to worry about the value of their investments in asset classes like equities. As they start to pull out, the prices start to fluctuate wildly, creating volatility. Most of the value locked in these virtual asset classes cannot be accessed physically, so one may have little or no control over them. At such times, gold investments are generally more secure, as it is a stable asset class and it is something that you can hold in a physical form. Once again, a quick look at gold prices over the years shows us ups and downs, but these losses and gains even out over a period of time and gold is considered to be a stable investment over time.
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Most importantly, many investors view their purchases of gold as a constant. They believe that even if we see a total economic collapse around the globe at some point in time, gold will be that one thing which will still hold value. In our opinion, that is reason enough to hold gold.

Talk to our precious metals team about your gold investments

At Physical gold, our team of experts have many years of experience in dealing with precious metals. You’re in safe hands knowing we have membership of various trade associations including the Royal Numismatic Society. They are able to advise you on the best way to build a gold portfolio with regular investments that will stand the test of time. Call us on 020 7060 9992 or drop us a line to get in touch with the team. We always take your investment goals into consideration and advise you on the percentage of your financial portfolio that should be invested in gold, and on how to get the best buys by taking advantage of the markets.

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The Effect of Government Quantitative Easing on Gold and Silver

A country’s monetary policy usually has some kind of knock-on effect on the prices of all stocks, bonds and commodities. Of course, although we view gold and silver as precious metals, they are essentially traded as commodities. So, all monetary policies will have certain effects on the gold and silver markets. Investors are often confused about what quantitative easing really is and how this move affects markets. Let’s dive in and find out.

What is quantitative easing?

Firstly, quantitative easing is not a normal step taken by the central bank of a country. It is an extraordinary and somewhat unconventional move in which a country’s central bank basically increases the money supply. Many of you may think that’s inflation. But we must understand that quantitative easing does not involve the printing of extra banknotes. The central bank (in the UK it would be the Bank of England) simply buys government securities and other financial instruments from the market in a bid to lower interest rates and increase the money supply, thereby creating more liquidity.

An explanation of quantitative easing from the Bank of England
An explanation of quantitative easing from the Bank of England

So, the assumption here is that lowering interest rates would add stimulus to the economy by encouraging industry to invest more. When companies invest and start new projects, more jobs are created and additionally, there is a positive ripple effect that kick starts smaller suppliers to also start providing services to the bigger players.

Quantitative Easing
Gold is a safe haven for investors during times of uncertainty

What are the benefits of quantitative easing?

So, quantitative easing (QE) increases the supply of money and financial institutions benefit by increasing their capital base. This promotes lending and increases liquidity, ushering in a revival of the economy. Quantitative easing is usually a step taken when short-term interest rates have fallen to zero or are nearing zero levels. Going by past experience, we can say that if the central banks invest $600bn, the move typically triggers a fall in interest rates of 0.15 to 0.2%.

When did the UK first start exploring quantitative easing and what were the results?

At the height of the last financial crisis, in 2009, the interest rates were dropped to 0.5% for the first time in the history of the Bank of England. The UK economy badly needed a shot in the arm and the first QE programme for the UK was started with an infusion of £75 billion. This was eventually raised to £200 billion. The programme was rolled out on 5th March 2009. The Bank of England had been contemplating a drop in interest rates to 0.5% from 1.00% for a while. By November 2008, the financial pundits of the Gordon Brown government knew that the drop to 0.5% wasn’t going to be enough. It had to be backed by a parallel strategy that could save Britain from going into a long drawn economic depression.

Alistair Darling, the Chancellor of the Exchequer adopted a financial technique that had been used in Japan during the early 2000s. Interestingly, the same technique had also been adopted by Ben Bernanke, the chairperson of the American Federal Reserve, during the US chapter of the crisis, which triggered the fall of Lehman Bros. The radical macroeconomic technique was designed to put cash back into the hands of banks by buying out the government and corporate bonds they held.

These resources would have a two-pronged effect. Firstly, the new demand for these gilts would drive up their prices, triggering the required fall in the interest rates. Banks would now have money to pump back into the economy and things would be easier for businesses and individuals, as the cost of borrowing would be radically reduced. That was pretty much how the under-performing banks like RBS were saved back in the day. The government was able to bail them out via the QE programme.

Many homeowners also rejoiced at the time, since their mortgage repayments dropped to a negligible level. Many homeowners across Britain seized the opportunity to opt for capital repayment, ensuring that banks were able to recover their sub-prime housing loans, injecting more cash into their reserves. The move was hailed as having a double whammy effect for the sub-prime housing market in the UK. While the banks were able to claw back the money they had loaned, homeowners were able to reduce their debt exposure and free up equity in their homes.

However, many critics have been sceptical about the success of the U.K.’s QE programme. It has been 11 long years since the programme was rolled out. It had been purported as an emergency measure, designed to revive the economy and not a permanent fixture. Additionally, interest rates never recovered completely and remained near zero, as we plunge headlong into the next financial crisis. So, the verdict in the minds of many is that the program was a relief mechanism that did not have long-term success. However, in the backdrop of these criticisms, one must not forget that the UK has had the longest sustained quarterly growth record of any G-7 nation.


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What quantitative easing was taken during the Coronavirus pandemic of 2020?

US response

On 15th March 2020, the US Fed announced its fourth round of quantitative easing. The Fed is purchasing $700 billion worth of mortgage-backed securities ($200 billion) and treasuries ($500 billion) with three main priorities:

  • boosting liquidity within financial systems and
  • increasing the aggregate demand by expanding the supply of money
  • helping the US to avoid going into a recession

Part of the Fed announcement from 15th March said

“We haven’t set a gradual schedule for QE, quite deliberately. This crisis in UK financial markets demanded more. We will act in the markets promptly and rapidly as we see appropriate. The alternative was a run on sterling, a flight to the dollar and a complete breakdown of the UK financial system’s core.”

On March 23rd, 2020 the Federal Reserve announced:

“it would purchase an unlimited amount of Treasuries and mortgage-backed securities in order to support the financial market.”

UK response

On 19th March 2020 the Bank of England increased quantitative easing in the UK by £210 billion (from £435 billion to £645 billion) through the purchase of government bonds.

Andrew Bailey the new Governor of the Bank of England announcing the £210 billion quantitative easing said:

We haven’t set a gradual schedule for QE, quite deliberately. This crisis in UK financial markets demanded more. We will act in the markets promptly and rapidly as we see appropriate. The alternative was a run on sterling, a flight to the dollar and a complete breakdown of the UK financial system’s core.

On 18th June, 2020 the Bank of England raised quantitative easing by an additional £100 billion (from £645 billion to £745 billion) through an additional purchase of government bonds.

Andrew Bailey said after the additional easing

“As partial lifting of the measures takes place, we see signs of some activity returning. We don’t want to get too carried away by this. Let’s be clear, we’re still living in very unusual times.”

All quantitative easing to date by the central bank for quantitative easing purposes have been (click here for further details):

  • November 2009 – £200 billion
  • July 2012 – £175 billion and
  • August 2016 – £60 billion
  • March 2020 – £210 billion
  • June 2020 – £100 billion

EU response

On 18th March, Christine Lagarde the President of the European Central Bank announced the €750 billion Pandemic Emergency Purchase Programme (PEPP). This was for the purchase of private and public sector securities to mitigate the economic risks caused by the COVID-19 pandemic. Purchases will be made up until the end of 2020 for all asset categories, which are eligible under their asset purchase programme.

On 4th June, the EU announced an additional €600 billion of quantitative easing with an aim of controlling inflation and stimulating vulnerable areas of the EU economy caused by the COVID-19 pandemic. This brings the total response to €1350 billion of quantitative easing when added to the €750 billion from March.

Relative comparisons of response – US, UK and EU

Although, this is a moving picture as at 22nd March the following amount of quantitative easing has been provided by the 3 different central banks:

  • US – $700 billion – 3.3% of GDP initially, but this is unlimited
  • UK – £310 billion – c14% of GDP and
  • EU – €1350 billion – c13% of Eurozone GDP

The US response was the first and is now seen as a small intervention in the markets. Almost certainly there will be further rounds of quantitative easing from the 3 central banks.

How did the 2008 financial crisis affect QE?

The 2008 financial crisis triggered massive falls in interest rates in the UK. As the crisis broke out, interest rates were at 4.5% on 8th October 2008. By 5th March 2009, it had fallen to 0.5%. Unemployment rose as businesses failed due to their cash flows being affected by the bank’s refusal to lend. Overall consumer confidence plummeted and the entire economy entered a bearish phase. By March 2009, quantitative easing was introduced. The Bank of England put in an initial tranche of £75bn in new money, rising up to £375bn eventually.

If you want to know “How to sell gold for the most cash”, watch our YouTube video.

The Bank of England actually called it ‘asset purchase facility’ and bought assets from financial institutions like high street banks. Many of us remember the bailing out of Northern Rock at the time. The Bank of England formally started its QE program on 5th March 2009 after bailing out the high street banks. Initially, it was just long-term government bonds, but by the 25th of March, the program had been expanded to purchasing corporate bonds as well, in an effort to boost business confidence and increase lending to companies. In 2013, Japan announced a massive QE program going into trillions of dollars to boost its economy, in response to the global financial crisis.

Quantitative Easing
The Bank of England introduced quantitative easing in 2009 as part of the monetary policy

In recent years, the ECB has announced a halt to its QE programme, in spite of a continuing slowdown in the European economy. The ECB is currently investing 30bn euros in buying bonds, although this program was slated to phase out by the end of 2018, Coronavirus and the world economy has caused a change in plan!

What are the effects of quantitative easing on gold and silver?

So, now that we know what quantitative easing is all about and how large industrialised economies used it during the global recession, let’s look at how it affects the gold and silver markets. Well, firstly quantitative easing is a step usually taken by central banks during economic turmoil. We already know that gold and silver act as safe havens during these times. So, if we look at price charts for gold during the period 2009 to 2011, we can see that gold prices skyrocketed during this period.

Insider's Guide to gold and silver
According to economist Marc Faber, quantitative easing hurts currencies and sends people rushing to buy gold. In 2016 he predicted that gold would continue to rise on the back of the fourth round of QE undertaken by the US federal reserve. On June 14th, 2018 when the ECB made the announcement to phase out QE by the end of 2018, they also announced that the European economy was still soft and interest rate hikes would not take place till March 2019. This news saw the gold market responding positively on that very day. Therefore, we can surmise that while QE is good news for the economy in terms of its GDP growth at a time of crisis, it’s not good for the stability of currencies. It’s both these reasons that spur the rise of gold prices at these times.

Call us to know more about gold investments

Our investment experts can guide you on the best times to invest in gold and silver and how to approach them. Call Physical Gold Limited on 020 7060 9992 or get in touch online and a member of our team will get in touch with you shortly to discuss your investment objectives and how precious metals can be an important part of your investment plan.

We sell a range of gold bars (sizes from 1oz, 100g to 1 kilo), gold coins (including gold Sovereigns and gold Britannias).

We also sell an excellent silver range, including silver bars (such as a 1 kilo silver bar) and silver coins (including silver Britannias).

Image Credits: Photo by DAVID ILIFF. License: CC BY-SA 3.0, Public Domain Pictures and Wikimedia Commons

 

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Gold investment versus Property – is property losing its shine?

Gold v Property. Which is a better investment?

The decision of where best to invest your money is an important one. Buying property has been a favoured choice for UK investors for years. Returns have been excellent and the physical nature of bricks and mortar has appealed in its simplicity.

But choosing the right property and managing it isn’t straight forward and now investing in real estate in the UK is less lucrative due to legislative and market evolutions.

Over the past decade, the very same investors who feel comfort in property’s simplicity, are starting to turn their attention increasingly towards another unfussy tangible asset – gold.

So which asset is better – gold investment or property?

In this analysis we’ll cover;

  • Gold and Property are good places to start
  • 6 crucial comparison points
  • 7 major threats to property which are catalysts for gold
  • Conclusion

Toying with the choice between physical gold and property investment? Download this FREE cheat sheet containing all the crucial considerations


Physical Gold Investment and property are good places to start

As keen investors know, there are two key rules to adhere to when investing:

  1. Only invest in things you understand
  2. You have to be lucky with timing.

Certainly, I stick with the first rule religiously, which is why I’m a big fan of both physical gold investment and property. They’re both simple, tangible assets, with an intrinsic value.

And whilst I agree with the second rule – that there’s always an element of luck involved, I also believe intelligent, strategic thinking can vastly improve your chances of great timing. Trying to predict the market and repeated switch from one asset class to another requires extraordinary luck, which soon runs out.
Insider's Guide to gold and silver

6 crucial comparison points

 

1) Recent property v gold performance

Let’s start by comparing the performance of these two asset classes, in the UK over the past 3 years.

House Prices

The UK House price index shows a 14.2% increase in average UK house prices in the period from June 2015 to June 2018. Just under 5% per annum capital growth in a low-interest-rate environment sounds pretty good. Add in rental income and it’s easy to understand why property is such a popular UK investment. However, when you drill into the figures, returns vary considerably from region to region which adds a layer of complication to the investment. Buying in the next ‘up and coming area’ can be down to as much fortune as expert insight.

How about the bigger picture?

Go back further to 2008 and average house prices have risen from £181,000 to today’s £224,000, an annual increase of 4.2%. This encompasses the period of super low-interest rates.

However, when we look at figures for the past 12 months, average UK house prices have risen a mere £3,000 or 1.3%. Even more significantly, key areas such as the usually thriving London market are now starting to see monthly falls in prices.

Speak to an estate agent and they’ll tell you that the current market seems to be softening month on month. Rather than houses selling above the asking price, vendors are being forced to offload properties at discounts due to flailing liquidity.

The below chart from www.home.co.uk demonstrates the fact that housing inventory is lingering on estate agents’ book for around 15% longer than a year ago.

physical gold investment
Properties are taking longer to sell in the key London market

Gold prices

For simplicity and better comparison, let’s just focus on the gold price in Sterling terms.

In the past 3 years, the UK gold price has risen 25.9% from around £770/oz to £970/oz. That marks an impressive 8.5% annual return. This outperforms UK property prices in the recent past.

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How much is a gold bar worth? – Watch this video to find out!

 

Volatility plays a role

However, it’s important to note that while house prices tend to rise or fall steadily in one direction, the short term gold price is far more volatile. Returns over the past 3 years are very strong. But looking at the 6months from June 2015 to December 2015, the gold price fell around 7% in the UK. This makes the overall 25.9% increase even more incredible, but also clarifies that gold should be deemed a medium to long term buy and hold rather than short term speculation.

…and longer-term performance?

Taking a further step back and analysing gold’s returns over the past decade is even more remarkable. The spot gold price has risen from around £450/oz (June 2008) to the current £970/oz (June 2018). That’s an astonishing 115% increase or nearly 12% per annum.

If you’re a property fan, considering adding to your investment portfolio in the next year, you may instead wish to consider investing in Tax-Free Gold.

2. Market accessibility

Property entry point

Clearly, purchasing an investment property outright requires a large amount of capital. With average property prices above £224,000 in the UK, many people will find the market inaccessible.

Focussing on more modest properties such as studio flats, perhaps in less salubrious areas will certainly bring that figure down. But even small apartments in less desirable locations will require substantial investment figures.

physical gold investment
Average first-time buyers need a £33,000 deposit

Mortgages can bridge the funding gap

Most real estate investors will seek a mortgage to bridge the funding gap. However, obtaining mortgages is becoming increasingly difficult. Since the 2008 credit crunch, lending rules have tightened alarmingly with many buyers being with high credit ratings being turned down. The desire of lenders to seek new business is being crimped by their fear of defaults which has led to a far more strenuous lending process.

Even more significantly, the deposit required to obtain a buy-to-let mortgage has risen dramatically from a common area of 5% a decade ago to a more usual 25-30% nowadays, which instantly eliminates those with more modest means. Major estate agents Savills predict mortgaged property investments to fall a staggering 27% in the next 5 years.

Schemes to buy fractional ownership of property is available for those unable to afford a whole property, but this now enters a different realm, introducing a raft of other risks.

Gold starting amount

While the perception of gold investment is that it’s just for the rich and famous, gold is relevant to all of us regardless of wealth. Over the past decade, an increasing number of gold dealers have developed online platforms to purchase physical gold coins and gold bars (with small sizes such as 1oz and 100g available) with free insured delivery or convenient storage.

Increased competition, live pricing technology and transparency have made the gold investment market very accessible to everyone. While loans and leverage aren’t provided for physical gold investment, investors can pay by debit or credit card, as well as online transfer.

Low entry point

With many of the world’s major manufacturers such as The Royal Mint now producing favourite coins such as the Britannia and Sovereign in small fractional sizes, starting point for investors is around £100. With such low possible investment, gold investment is affordable to everyone.

Rewarded for quantity

A big difference between property and gold investment is that the latter offers discounts for larger quantity investments. So the price per gram when investing £100,000 is far lower than for £10,000, which in turn represents better value than buying £1,000. With that in mind, while the £100 starting point is possible, it doesn’t necessarily provide good value investment. Once investors buy a few thousand pounds worth of physical gold, decent discounts begin to kick in.

3. Type of returns

Property investment returns

One of the major appeals of investing in the housing market is the double whammy of possible capital appreciation and rental income. While capital appreciation is unpredictable, many property investors have made vast sums of profit simply from buying and selling at the right time. We all know that when the UK property market is on fire, prices can be like a steam train.

Passive income

Rental income is more predictable, especially if you PHYS01_Animated_Gif_2_MPUcan agree to longer-term agreements with tenants. With high property prices excluding many UK residents from affording to own their own property, demand for rental property is high. The prospect of passive income is one of the main attractions of building a property portfolio, especially for those more mature in years, who still require an income.

Rental sector prospects for 2018 and beyond

Leading estate agent Knight Frank believes overall UK rental values will rise by 1.2% in 2018, but warn that London and the surrounding areas will see falls of 0.7% or more.

The risk of rental income is that tenants can default on payments, especially with wages stagnant or negative, but living costs rising. There’s also the prospect of having certain periods with the property unoccupied and receiving no rental income. This can represent a cash flow challenge as buy-to-let mortgages still need to be paid during such times.

Types of gold returns

Gold returns depend on which type of gold investment you own. Gold funds and mining shares can appreciate along with offering dividends.

However, for the sake of this comparison, we’ll just consider physical gold, as its tangibility makes it the most suitable alternative to property investment.

Capital appreciation

Unlike owning and renting a property, buying physical gold as an investment will not provide an income. For this reason, mature investors in need of an income, tend to focus on bonds and properties to provide this. They tend to supplement these investments with gold as a form of portfolio insurance.

Investors own gold coins and bars (typically up to 1kg)  in the hope that both the gold price and type of physical gold appreciate. Appreciation is calculated according to the underlying gold price multiplied by the weight in gold that an investor possesses. Gold has more than kept pace with inflation over the years and has risen in value, especially during times of economic and political instability.

Additional rises in capital value possible

In a similar way that Victorian properties can be more valuable than brand new houses of similar square footage, Victorian gold coins can be worth more than brand new coins. But while premiums on period properties are generally fixed, older gold coins can continue to rise in value quicker than just the underlying market, providing a boost to profits.

victorian gold sovereign
The Young Head Victoria Sovereign trades at far higher premiums than the other two portraits

4. Liquidity

Property liquidity

The ease with which an investor can offload a property will depend on the type of property, the state of the market, and the location.

The first element is in your control. Sticking to more modestly priced properties will increase the number of possible buyers for the property, speeding up the selling time and improving the price achieved. One and two-bedroom apartments near major transport links tend to be the sweet spot, and most resilient to market conditions.

How does location impact liquidity?

On a macro level, trying to sell a property will be impacted by the particular region in which the property is located. We’ve already seen how London is currently underperforming other areas of the UK at the moment with housing stock proving stickier at current levels than cheaper areas. This can come down to timing and luck as hotspots can change regularly. London is renowned to be one of the most liquid areas usually due to the high demand to live in the capital. If your property’s location has become trendy, sales can be sped up considerably.

On a micro level, buying properties near to train stations, amenities and desirable green land, can all speed up the process when it comes to selling.

Dangers of a sticky market and the dreaded chain

If the property market is in a state of decline, selling a property can be very difficult. In these circumstances, sales can take many months or even years. With mortgages becoming increasingly difficult to obtain, being let down by another party in a long chain of buyers and sellers can be frustrating at best and a nightmare at worst.

Gold liquidity

Gold’s liquidity is one of its great appeals. Regardless of whether the gold price is busy or quiet, gold investors can achieve a sale within a day or two if needed. Rates that dealers pay for your gold will vary depending on the state of the market, but differences will be a percent or two at most.

Divisibility and type of gold play a part

Similarly to buying the right property, selecting whether to buy gold coins or gold bars, for example, can impact the ease in which it is to eventually sell.

It may sound obvious, but buying a 1 kilo gold bar (which costs around £35k) means that you cannot sell £15,000 worth of gold if you need to raise funds. Obviously the same goes with property – you can’t sell half if you need. But buying £35,000 of 1oz gold coins would enable the gold investor to sell in any increment they want.

physical gold investment
Gold coins provide unparalleled liquidity

Does the type of gold coins matter?

Buying the right type of gold coin also enhances its liquidity. Coin collectors will likely need far more time to sell their unique gold coins as they have a narrower buyer base. These numismatic coins are likely worth many times their simple gold content, so more time is needed to achieve the price.

Sticking to well-known bullion coins will enable a super-quick sale to a gold dealer at a good price.

5.Tax efficiency

Tax treatment of property investment

General residential buy-to-let properties are becoming less tax efficient. Unfortunately, there are tax burdens when you buy, while holding the asset and when you sell.

Tax when you buy

Stamp duty is a tax when you purchase a property, based on the purchase price of the house or flat. Each higher bracket of stamp duty only applies to the value amount within that higher bracket. Properties below £125,000 in value are rated zero percent, with 2% charged up to £250,000, 5% up to £925,000, 10% on homes up to £1.5m and a colossal 12% above that. Once you consider the conveyancing fees as well, it costs a huge sum in tax just to get started.

Even worse, in April 2016, an additional 3% stamp duty is applied to all these brackets for buy-to-let properties. (see details below in the ‘4 Major Threats to Property’ section).

Tax when you hold

If you’re renting out a property, then income tax applies to the rental income. The ability to offset this with your mortgage costs is also disappearing (detailed in ‘4 Major Threats to Property’ below).

Tax when you sell

With the double incentive of an income and possible capital appreciation, 10 commandmentscomes the double punishment of income and Capital Gains Tax (CGT). Selling your main UK residence at a profit is thankfully not liable for CGT. So mercifully, you can ‘invest’ in your own property without the fear of fiscal punishment.

However, CGT applies to gains made on second homes. All you need to know about CGT is that each individual has an annual tax free threshold (around £11,000 each), with any gains above that being taxable. With the scale of property values, this threshold has little chance of protecting you from up to 28% CGT, especially as you can’t sell half a house before the tax year-end a half afterwards!

How about buying within a pension

While commercial properties can be more tax-efficient as they qualify for a Self-Invested Personal Pension (SIPP), residential properties are not a permissible asset.

Gold’s tax efficiency

With buy-to-let investors to be hit hard with the fiscal stick, it could see many of them moving some money away from property and into physical gold investment – which has no such tax penalties.

Tax-free purchases

As long as you buy ‘investment grade’ gold, your investment is VAT exempt. To qualify as investment grade, the gold needs to be in the form of a bar or coin and at least 22 carats in purity. So that discounts gold jewellery or low purity coins.

As we’ve already mentioned, holding physical gold produces no income so there’s no income tax to pay.

physical gold investment
Being tax efficient can boost returns dramatically

No tax on disposal

The real bonus with gold investment is that if you buy the right type of gold, there’s also no CGT to pay on any profits. For UK residents, this means buying British coins with a face value. This face value qualifies the coin as legal tender, for which tax is not applicable. Predominantly, UK gold investors focus their purchases on gold Sovereign or gold Britannia coins, which are both classed as legal tender.

Even if you wish to invest in gold bars or non-UK coins, CGT can be avoided due to the smaller divisibility of the asset compared with property. Krugerrands, for instance, are a popular coin which in theory are taxable if you sell at a profit. But due to their modest size, some can be sold before tax year-end and others afterwards to spread out any profits, thus keeping within tax-free thresholds.

6. Ongoing costs

Property costs

With investment properties being occupied by tenants, wear and tear are inevitable. As a landlord, you’re obligated to provide upkeep and maintenance of the property for your tenants. Clearly, you have a vested interest to uphold your property’s condition too. The level of these ongoing costs will depend on how well your tenants look after the property, the age of the property and the value.

For larger property portfolios, it’s not uncommon for many properties needing work at once, leading to high running costs. Paying a management fee for a company to help this process is common. Ongoing fees to manage tenants and rent are also applied if you’re unable to manage the process yourself. Finally, landlord insurance is required by law, further saddling the property investor with continuing costs.

Physical gold coins or bars costs

The main ongoing fee for gold is insurance and storage. For modest amounts of gold, it’s possible to take delivery yourself, reducing ongoing fees to buying a home safe and adding the gold to your contents insurance. But for larger investments, the peace of mind of professional vault storage is comforting. However, insured storage can cost up to 1% per year of the value of the gold, which will rise as the value of gold increases.

7 major threats to property which are catalysts for gold

Any factor which is detrimental to the economy or specifically the housing market can act as a huge boost to gold investment. As the world’s safe haven asset, economic and political instability which can impact property investment negatively, will likely provide a magnet for investors to gold, as a way of seeking protection. We’ve seen this switch into precious metals throughout the history of gold investment.

Bad news for UK property can also put Sterling under pressure as a currency. This indirectly boosts gold prices in the UK, as pricing originates in Dollars and is then converted into Sterling. So a weak Pound increases the price of gold for UK investors.

1. China woes and Russian politics

The biggest overseas buyer of UK property in recent times has been the Chinese. They’ve not only been the catalyst for UK property price increases but almost single-handedly provided momentum to the global economy. It’s not uncommon to hear that an entire block of new flats has been sold within weeks, mainly to the Chinese market.

But cracks have started to appear in the world’s second-biggest economy, forcing the Chinese central bank to devalue its currency on some occasions this year. Stock markets have already reflected the growing concern and accepted that the Chinese bull-run is possibly coming to an end.

China’s size is significant

If, as expected, Chinese demand for UK properties wanes, then we’re likely to see the heat from the market dissipate. China’s size (it contributes more than 13% of global GDP), means a shrinking economy will also impact every other region around the world – further curbing demand for UK buy-to-lets.

Equally the wealthy Russian buyers have also held an obsession with buying UK properties over the past decade. With political tensions increasing with Russia, many are pulling out of the UK market, especially with visas harder to obtain.

With their focus on the high-end London market, it’s no surprise that this is now the region and sector which is most missing their enthusiasm and Rubles.

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2. New legislation around greenbelt land

Supply and demand play a key role in both property and gold. With property investment, it’s reassuring that, here in the UK, we have the equation of an increasing population and very limited space to build new houses. Similarly, gold’s demand continues to increase, whilst supply is extremely limited, due to no major discoveries in the past 15 years.

However, the squeezed housing supply, currently pushing up UK prices, could be about to explode. Many affordable housing projects are already underway. But it’s the biggest shake-up of protected green belt land in 30 years that will provide the catalyst to a surge in UK housing stock.

If the proposal to build thousands of new starter homes is approved, it could play a huge role in alleviating the current supply shortage.

3. Stamp duty rise on buy-to-lets

Whilst property supply may increase, the Government is also determined to hamper demand in a desperate attempt to prevent another financial crisis. In the last few years, the budget specifically targeted UK property investors – adding a huge 3% extra stamp duty for buy-to-let investors starting in April 2016.  This applies across the valuation board and will need to be paid in addition to the current stamp duty rates. This equates to an additional £15,000 stamp duty on a purchase of a £500k property.  This additional upfront tax burden may put off those looking to enter the market or those wishing to add to their current property portfolio.

Difficult to raise money

Post the 2008 financial crisis, banks are now increasingly tight-fisted when it comes to giving out generous mortgages on buy to let properties. Not only is it difficult to get a buy to let mortgage, but recent budgets have also witnessed reduced tax breaks for buy to let investors, making the asset class less attractive for investors.

4. Reduced tax breaks

If that wasn’t enough, new legislation already passed,

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will impact the income received for all UK buy-to-let investors. Previously investors were able to offset much of their rental income against their mortgage, meaning little or no income tax on the investment. However, this benefit is now being phased out, so anyone owning investment properties will face significant rises to their tax bill. This will not only deter new investment into the market but may also see existing owners sell to avoid the tax hike.

5. Interest-only mortgages coming to an end

The days of easy money before 2008, witnessed an epidemic of UK house buyers taking out interest-only mortgages. The idea was that the borrower could invest money in the stock market for the duration of the mortgage term and witness growth which out-paced the amount needed to pay off the loan’s notional amount. This would leave them with a bonus nest egg to do with what they liked.

But when stock markets failed to make the expected gains, many households fell short of the amount they required. The consequence was that the Financial Conduct Authority (FCA) has applied pressure to lenders to stop giving these mortgages out anymore. Nowadays, interest-only mortgages are only really available on buy-to-let properties rather than main homes.

Interest-only time bomb

However, with one in five mortgage customers having one of these deals, the next few years could see many homeowners facing eviction. A huge proportion of loans handed out in the 1990s are maturing over the next few years.  And a lethal cocktail has brewed which could hit the housing market and the economy hard.

After a decade of ultra-low interest rates, many homeowners have continually re-borrowed as their homes have risen in value. This extra money has helped fuel the economy to this point, but it leaves many with very high loan-to-value (LTV) on their homes. With these loans deals about to finish, these homeowners will fail to obtain new interest-only deals. Combine this with interest rates already on the rise, and monthly mortgage commitments could increase ten-fold.

Such an impact would undoubtedly witness house prices falling with further rental demand.

Physical gold investment
Brexit concerns and fears impact gold prices and confidence

6. Increased uncertainty over Brexit

The continuing uncertainty over Brexit is a cause for great concern when it comes to property market investments. As the gates close for new immigrants, property market demand is likely to be affected causing volatility in the real estate market.

It’s unclear what sort of trade deal will be achieved for the UK after its £39 billion divorce bill is paid. Either way, the uncertain journey, regardless of the quality of the final destination, is bad for property markets and supportive of a market hedge such as gold.

What’s happening in Italy?

As was suspected, Brexit isn’t an isolated incident. Not only does the UK’s withdrawal from the EU impact many other countries, but it also sets a precedent. Italy has followed suit in electing a coalition Government borne out of the desire for change.

With the far-right coalition suggesting the appointment of a eurosceptic finance minister, President Sergio Mattarella has stepped in to deny the selection. This unheard-of move has caused Italian bond yields to plunge more than at any point since the Euro’s inception in 1999.

This leaves Italy in a state of limbo with the new Government wishing to spend its way out of trouble at rates that would break EU guidelines. This demonstrates their desire to be the next to leave the single currency and return to controlling its own political destiny.

7. Equity market correction

We’re all enjoying our stocks going up in value in our pensions and ISAs. But all good things must come to an end. Analysing stock valuations over the past 150 years depicts bull runs lasting up to 6 years, immediately followed by a market correction. The Dow Jones and FTSE indices are now enjoying their 9th year of rising prices, so the law of averages tells us that the downturn is overdue.

Maybe it will keep rising indefinitely?

An analogy would be the city of San Francisco. History and science tell us that being located on the San Andreas fault guarantees future earthquakes. With many of the current residents having enjoyed years without a major quake, it’s naïve to suggest it will never happen. It will happen, we just don’t know when. What we do know is the longer it goes without a quake, the bigger the damage when it does occur. The same can be said of stocks.


Worried how exposed you are to a market downturn? Take our FREE test to find out here


What’s the outlook?

Each day we read about more major brands either shutting stores, making redundancies or even going into administration. This isn’t just small independent shops in the high street, but major mega brands such as House of Fraser, BT,  Sainsburys & Asda, Toys R Us and Maplin. On an evolutionary note, commerce is changing at the fastest pace for a century with online giants like Amazon squeezing profit from physical stores and automation replacing human jobs. This will only continue with technology.

Many market experts predict a major stock market correction with the Fed Reserve starting to raise interest rates in the US. Closer to home, wages are stagnant and credit bubbles are almost at bursting point with car leasing and zero percent credit card deals.

Physical Gold investment
Experts can see the storm coming

What would be the impact on gold and property?

When stock markets tumble, every investor feels the pinch, jobs are lost and day to day income is impacted. This takes any heat from the stock market as fewer borrowers can raise the funds to move house or pay high rent.

This is also the very time, that institutional and savvy retail investors switch their attention to gold. As a safe haven, it tends to receive a significant injection of investment demand during such market downturns.

Conclusion

Which investment should I choose?

The great thing is that you don’t need to choose between property and physical gold investment. If you’re already a keen property investor, then it may be worth taking your first steps to gold investment to hedge your portfolio. As we’ve seen, possible threats to one asset class can be a benefit to the other. That way the two investment rules are met: property & gold is simple, tangible assets and timing become less of an issue if you own both.

However, we all know that strong economic markets don’t last forever. That’s where owning some gold comes into play. Relying solely on property investment means the good years are great, but the bad years are catastrophic. Combining property and gold investment hedges the issue, so regardless of underlying conditions, you should still receive both income and portfolio growth

Do you need to be lucky with timing?

Timing and cycles can make a huge difference in your investment returns. While gold prices could rise or fall in the coming months, the odds are convincingly in favour of now being a great opportunity for physical gold investment. Rather than try to time the stock market or property sector downturn, invest in gold now while prices are relatively low. It’s better to have your portfolio insurance in place 6 months, or a year before the downturn, than one day after.

 Is gold investment for you?

If you have decided gold investment is for you then look no further than Physical Gold. Why not call our experts on 020 7060 9992 today?

Image Credit: Daniel Diaz Bardillo

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What does BREXIT mean for gold and the economy?

So, we’ve woken up this morning to the shock Brexit result that the UK will leave the European Union. The kids still needed to go to school, the sun was out, the birds were still chirping and the world carried on. Realistically, will we see much change to our daily lives, or will leaving the EU have less impact than we think?

Panic from the shock

The campaign saw opinion polls swing one way, then the other, over the past few months, suggesting a lack of certainty in the result. However, over the past few days, polls suggested a win for the remain campaign. The Pound strengthened, equity markets stabilised and gold fell. The fact that this result is a shock to the expectation of the markets will intensify its impact.


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The immediate impact of Brexit

It’s impossible to predict the medium to long-term repercussions of Brexit, but we can, at least, see the immediate impact. The Pound has fallen to its lowest level since 1985 and the FTSE has suffered losses of over £100bilion overnight. Significantly, the Prime Minister has announced his resignation, which leaves the country in political uncertainty. The gold price has acted as a useful barometer of expectations and reactions over the past few months, and overnight it rose by 15% for UK buyers.
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Longer-term volatility

Outside of electing a new prime minister, we may not feel much has changed. We are still members of the EU; it is the process of leaving which has begun. The claim is that this process can take 2 years. However, Professor Michael Dougan, one of the UK’s leading EU law experts, predicts the withdrawal and negotiation could take many years. Switzerland is still discussing certain points, after signing an agreement in 1972. This protracted process will cause an extended period of uncertainty in the UK, and globally. We may also see changes politically as the anti-establishment vote gains confidence, causing further instability.

Financial impact

Without a crystal ball, we don’t know if Brexit will have a negative or positive impact on our cost of living and prosperity. Both sides have claimed we would be better off. The worry is that most business leaders, including those outside of the UK, think leaving will harm our finances. Certainly, the reaction of the markets supports this view.

The worst part?

However, it’s the prolonged uncertainty we now face, which may have the greatest effect. Financial institutions have already put the deals, which oil the wheels of our economy, on hold. The economy will likely feel a reduction in liquidity, as banks retreat into their shells. Over the coming months and years, it will be interesting to see the reaction of global institutions, who may decide to leave the UK at the cost of thousands of jobs. The UK has the 5th largest economy in the world, so this overnight change will send ripples across the globe. This isn’t something that can be swept under the carpet.

Gold’s role

Instability and uncertainty are the driving motivations for people to buy gold. It acts as a hedge and portfolio insurance when markets suffer huge events. The fact that the gold price has spiked so dramatically overnight is reassuring that it’s fulfilling its role as a ‘safe haven’.

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Those who like the security of owning a tangible asset – like property – may now be concerned house prices could fall. We’ve compared gold investment to property to analyse where the markets may be heading.

As we’re likely to have years of uncertainty, gold should continue to act as a long-term balance to your wealth. And in the UK, we should benefit two-fold:
– First, the underlying gold price has moved up sharply.
– Secondly, the value of the Pound has fallen dramatically. Once you convert the $ price into Sterling, gold holdings have risen 15% overnight and, incredibly, more than 35% this year alone.

The economic impact of Brexit

As the Brexit saga moves into 2018, gold should continue to perform well. British industry has had yet another dismal year and the current GDP growth rate is inching along at a snail’s pace of 0.4%. As we move into 2018, there doesn’t seem to be an amazing economic recovery in sight. Brexit may close the gates across the border, but the actual impact that it will have on EU industrial relations with Britain is still unclear. However, analysts have projected a grim view of 2018. Expected profit from Britain’s largest companies is now expected to grow only by 7.2%, dashing hopes of a 19% growth projected earlier. Many companies have put their plans on hold and some are contemplating moving operations to other parts of the EU.

That’s not all….

Meanwhile, the Financial Conduct Authority chief has warned that unless there is clarity on the exact impact of Brexit by the end of the year, several companies may ship out of London next year to rival EU cities. Certainly, Berlin comes to mind as a hot favourite. The German capital is vibrant, young and home to several start-ups. The city champions innovation and is fast becoming a centre of economic growth. Goldman Sachs has already taken up 8 floors of a new office in Frankfurt, and the BBC earlier reported that the Bank of England has predicted that up to 75,000 financial services jobs in London could be at risk.

Invest in gold

When it comes to gold, however, pundits believe that Brexit fears are inconsequential. Investors will probably hedge their risk by investing in gold to hedge against their European woes. The spot price of gold appears to be currently hovering around the $1250 mark, with December still left in the balance. There is hope that the precious metal may rally a bit further on the back of Christmas demand. However, the real rally for gold may come in 2018. This will depend on the performance of greenbacks against the Euro, demand from India and China and of course, Brexit is likely to play a role in the mix as well. Another factor that can impact the US dollar is the rise of cryptocurrencies like Bitcoin. With more and more people investing in crypto-currencies, some investors may turn to gold to hedge, if the going gets too tough for them in 2018. All in all, it should be an interesting year ahead for gold.

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If you don’t already own gold, but feel concerned about the diminishing value of the Pound and falling equity markets, then it’s never too late. We discussed the bigger picture in our blog last month: Are Gold and Silver still good value?.

It’s simply a case of heeding the view of the experts and allocating some of your wealth into physical gold so that whatever the future holds, you’ve spread your eggs into different baskets. If you’d like to find out more about this type of investment, why not Download our free guide to investing in gold and silver or give us a call today to discuss your options.

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“World Gold Council – India’s gold market: evolution and innovation” is locked World Gold Council – India’s gold market: evolution and innovation

WGC
India was one of the world’s fastest-growing economies in 2016. In recent years millions have been lifted out of poverty and India’s middle class has swelled. This is important because our econometric analysis indicates income growth drives gold demand. But India’s relationship with gold goes beyond income growth: gold is intertwined with India’s way of life. And as we look ahead, India’s gold market will evolve.

Indian Jewellery

Highlights

Our comprehensive report focuses on the following:

  • Economic growth drives gold demand: India was one of the world’s fastest-growing economy in 2016. This is key to the health of the gold market. Our econometric analysis of the drivers of Indian gold demand reveals income growth is the most significant factor: as India becomes richer, gold demand increases.
  • Urbanisation will change the shape of consumer demand: Rural and urban India can be thought of as two distinct markets. Rural India prefers to invest in gold jewellery, while urban India has a greater preference for bars and coins. Rural-to-urban migration will change the shape of consumer demand.
  • India has a young population with a strong affinity with gold: Over 45% of India’s population is under the age of 25. And young people think about the world differently from the previous generation. But our large-scale consumer research indicates that they do have a strong affinity with gold: when we asked the question what you would buy if you were given Rs50,000, a third of respondents aged between 18–33 said they would invest in gold.
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What’s behind the gold price rally, and will it hold?

InvestmentNews

Aug 11, 2016 @ 1:02 pm

By Jeff Benjamin

There are seemingly endless theories to explain the stunning gold-price rally this year, and most of them support more of the same for the precious metal.

Global gold demand reached 2,336 tons through the first six months of the year, led by investment demand representing a record 1,064 tons according to the World Gold Council.

That growing demand has driven the price of gold up 27% this year, marking the best first-half performance since 1980.

Juan Carlos Artigas, director of investment research at the World Gold Council, said unlike 1980, when the price spike was related to macroeconomic uncertainty, this years rally is fueled from multiple directions.

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There is still the issue of macroeconomic uncertainty, but we are also dealing with a U.S. dollar that is less strong than it has been recently, he said.

Considering that gold has come off a couple rough years while recovering from the 2011 lows, Mr. Artigas said there was some pent-up demand from investors who had been waiting for an entry point.

Investors reduced gold positions over the past three years and were looking for a reason to get back in to use gold again to hedge portfolio risk and preserve capital, he said.

Another theory behind the gold rally that continues to gain traction is unprecedented global monetary policy, including record quantitative-easing programs, interest rates at historic lows and nearly $12 trillion in negative-yielding government bonds around the world.

On that note, Jim Grant, publisher of Grants Interest Rate Observer, was quoted saying, Radical monetary policy begets more radical policy.

During a recent presentation to the New York Society of Security Analysts, Mr. Grant described the case for investing in gold as not a hedge against monetary disorder, because we have monetary disorder, but rather an investment in monetary disorder.

Mohamed El-Erian, chief economic adviser at Allianz SE, also indirectly attributed the gold rally to central bank policies.

While some may see gold as a hedge for the possibility of high inflation, the main driver of investor appetite at this stage is concern about the overvaluation of other financial assets, particularly stocks and bonds whose prices have been artificially lifted by central bank actions, he said.

Whether it is lofty stock market valuations, stingy bond yields or unorthodox monetary policy, investors are clearly chasing after the yellow metal.

According to S&P Global Market Intelligence, SPDR Gold Trust ETF (GLD) has grown to $41 billion, with $13 billion in net inflows this year through July, capturing more assets than any other ETF this year.

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And for those financial advisers really looking to juice up the gold rally, there are always the gold miners, which act as a leveraged play on the precious metal.

Talking gold with financial advisers will always bring out the naysayers who argue it is a metal that doesnt generate income. But in times like these, some advisers can feel downright smug about steady allocations to gold.

I believe a properly diversified portfolio should have an allocation to precious metals, said Scot Hanson, an adviser with EFS Advisors.

Mr. Hanson uses Permanent Portfolio Fund (PRPFX) to keep his clients between 5% and 10% exposed to precious metals.

Gold should always be there, he said. You always like to have a zig and a zag in the portfolio, and gold is doing exactly what it should be doing.

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RBC adds $200 to its gold price forecast

www.mining.com

Frik Els 15 Aug 16

RBC points to higher gold price

Gold has been treading water above the $1,340 an ounce level recently, coming off two-year highs hit earlier in August. Year to date the metal has gained almost 26% or more than $280 an ounce.

It’s been gold best first half run since 1980 when the price hit an all-time high on an inflation adjust basis. The rally has surprised many analysts and at the start of the year the vast majority of investment and institutional analysts predicted gold would dip below $1,000 during the course of the year and average below last year’s uninspiring $1,160 an ounce.

Many gold bears have now changed course and some of the big bullion banks including UBS now sees $1,400 before the end of the year, as does French bank Natixis (which predicted last year’s gold price down to the dollar).

The next gold bull market is under way, and any weakness is viewed as a buying opportunity

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Credit Suisse and BofA Merrill Lynch have it even higher at $1,500 going into 2017. Dutch bank ABN Amro, another erstwhile ultra-bearish house, revised its forecast to $1,425, adding that a Trump presidency could really see things explode.

Kitco reports Canadian investment bank RBC Capital Markets has now joined the gold bull chorus sharply revising their earlier forecasts upwards. The bank now sees gold rising to $1,500 in 2017 and 2018 compared to its previous forecast of $1,300.

RBC references the usual suspects for its more bullish outlook: “Elevated geopolitical risk in the U.K./euro zone, increasing systemic risk with increasing negative yields for government bonds and the Fed likely to pursue a more dovish monetary policy”. The Toronto-based investment bank has even better news for investors in gold mining stocks:

“We reiterate our view that investors should look to gold equities for exposure to gold, especially given the increasing free cash flow generated in the current gold price environment.

“We recommend that investors focus on operating companies with attractive margins, solid balance sheets, organic growth opportunities and a consistent operating strategy,” the analysts said. “Our technical outlook suggests that the next gold bull market is under way, and any weakness is viewed as a buying opportunity.”

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Why gold and silver are relevant to all of us, regardless of wealth

Throughout history, gold ownership has been perceived as an elitist privilege for those with huge wealth.

It’s been depicted in films as huge 400oz bars worth hundreds of thousands of pounds and its association with rich sheikhs, kings and central banks makes it seem out of reach for us regular people.  But actually, gold and silver can be bought in very modest quantities and can provide the same stability and wealth protection for you and I, as it does for the rich.

Who’s buying it now?

The past decade has experienced a huge evolution, as we live in an ever-increasing globalised economy. And whilst this has presented many opportunities, it also poses new risks.

In a bid to protect and balance, institutions such as hedge funds, pension funds and wealth managers are now joining banks, in adding gold and silver to their holdings. PHYS01_Animated_Gif_2_MPUThe unstable political and economic landscape, in which we now live, requires new thinking to protect our family’s wealth.  Traditionally a prudent investor would spread their money between stocks, bonds, property and cash in the bank, but we know now that those alone are not enough. In fact, many people are now choosing gold investment over property as a more tax efficient tangible asset.

We’re seeing record numbers of individuals adding precious metals to their holdings, as global threats affect us all, and everyone is entitled to protect their wealth. We all have other insurances such as car and home protection, so why not also have portfolio insurance in the shape of gold and silver? Gold isn’t just for the super wealthy.

How accessible are gold and silver?

It’s incredibly easy to purchase precious metals. There are now a large number of companies selling gold and silver in various shapes and forms. Research is readily available at the tap of a button, to enable informed decision making. Gold’s rapid acquisition amongst the masses, means there’s also very strong selling opportunities. Certainly, if you select a reputable dealer, they’ll be able to provide guidance, purchase gold and silver for you at competitive rates and buy it back from you in the future.

How much wealth do I need to get started?

Despite the elitist image projected in films, precious metals can also be bought in the form of coins and small bars. Most dealers will help if you just want to start with one small coin, so you certainly don’t need to invest everything you have. We even provide a Monthly Saver

account, where you can gradually accumulate gold or silver coins on a regular basis.

Conclusion

Regardless of the size of your overall assets, experts suggest between 5% and 20% should be in gold and silver to provide balance.  In India, people have been saving with gold for years as a means of protecting against a weak currency. Only now are the UK starting to realise its merits and understand that we’re all entitled to balance and protection, regardless of our level of wealth.

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How does the Budget affect investments in gold?

Investments in gold

Investments in gold are closely linked to the economy (usually inversely) and legislation changes brought about by the Budget. The Chancellor, George Osborne, delivered his Budget statement on Wednesday 16th March, following up his one hour-plus statement with the publication of a one-hundred and forty-eight page document. The Budget is not noted for its direct references to precious metals and this document was no exception. But what is always of interest, especially to those of us who hold gold and silver, is the big impact his announcements can have on our other assets, especially stocks and shares…

Since the Budget announcement, precious metals continue largely unchanged, reflecting the solid position of gold and silver as a balance to any portfolio.

Related – does your portfolio need gold?

Insider's Guide to gold and silver

This budget speech was no exception to previous Budgets. In 2014, a total of 3bn was wiped off the value of insurers, after a drastic change to annuity purchases. Partnership Assurance lost 55% of its value in a single day, whilst Just Retirement fell 42%.

This year the impact was less drastic, yet they still reflected the power of a speech made by one man; eroding value from stocks and shares that many of us hold in our pensions and ISAs. The Chancellors surprise adoption of the so-called sugar tax was bad news for many large companies. In particular, AG Barr and Britvic (perceived as solid shares held in many pensions and popular funds), were down 2.4% and 1.3%.

Related – strong gold prices for 2016.

In general terms, the Chancellor warned of a rocky road ahead. UK growth for this year was pegged at 2% – lower than some had predicted in the build up to the announcement. And Britains potential exit from the EU was a main theme of the speech, with the Chancellor highlighting that a Brexit could usher in a prolonged period of uncertainty.

The EU referendum on 23rd June looks likely to be a central battleground, around which stocks and shares will face added volatility. Whilst the equity markets face an uncertain year ahead, gold and silver have risen more than 15% this year alone.

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Related – is property losing its shine?

If you currently have a portfolio with exposure to mainstream assets, including property, then it may be worth considering adding investments in gold and silver to add balance and prepare for that referendum and of course, future Budget announcements!

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Will your pension be raided in the Spring Budget?

spring budget

In the Spring budget of March 2014, the Chancellor George Osborne was praised for one of the most radical pension reforms in over 50 years. Previously you were forced to exchange your hard saved pension for a poor value income with an insurance company. But now, the public would be trusted to do whatever they like with their entire pension pot.

The new pension freedoms have been met with almost universal acclaim, though some sceptics believe the public may not resist squandering their entire pension on flash cars and holidays.


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Spring Budget to squeeze the middle classes

Fast forward 2 years, and the next Spring budget is due on 16 March 2016. And whilst the UK

PHYS01_Animated_Gif_2_MPUhas been praised for its welfare cuts and apparent austerity, speculation suggests that further cuts are required to contain, and ideally reduce, the national debt.

Rumours are mounting that the Spring Budget may deliver the biggest shock to pensions of all – but this time, not positively.

If Osborne continues to deliver budget surprises, then his most likely weapon of choice will be a reduction on the tax relief currently offered on UK pensions. The suggestion is that lower rate taxpayers won’t be affected as they’ll still receive a 20% top up on all their pension contributions. This equates to a £100 contribution being grossed up to £125.

Instead it’s the, already squeezed, middle classes who will be hit hardest. Currently, for every £100 a higher rate taxpayer puts into their pension, the Government tops up by 40% or £66. If the chancellor slashes this to a flat 20% for all, then the middle classes will lose £41 for every £100 they currently pay in.

There’s even the extreme option that the budget will cut ALL tax relief on pensions, and instead allow pensioners to take their whole pension-pot, tax free, after the age of 55. Currently they can take their entire pension, but only 25% is tax free. A basic rate tax payer saving £250/month for 25 years would lose out by £40,000 with no tax relief and a higher rate taxpayer £70,000.

How likely is this?

Unfortunately it’s very possible indeed. Firstly, the chancellor has previous form. He’s already attacked pension limits – reducing annual contribution caps to £40k and lifetime allowances to £1 million. So it certainly wouldn’t be the first time he astonishes the markets with his budget announcement.

He’s also under mounting pressure to eliminate the annual deficit (which recently rose to £8.2 billion), by the end of 2019. The UK national debt currently stands at over £1.6 trillion, but worryingly is growing at the rate of £5,170 per second.

With global markets under renewed pressure from ultra low oil prices and floundering Chinese stock markets, it may prove increasingly difficult to raise taxes. The next weapon in his armoury would be cuts to tax relief. The current pension relief costs the Government £34 billion a year, so this would be incredibly effective in an overnight reduction in Government outgoings.

The only hope is that Mr Osborne’s ambitions of becoming prime minister may prevent him from upsetting the core Conservative voters – the middle classes. Any raid on their tax relief could be seen as a huge betrayal to Tory values and ruin any chances he has of taking the helm.

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Alternative Tax Relief?

Naturally if you want to add gold into your pension then the relief you’ll receive on that purchase will reduce in line with the new budget. However, adding gold bullion is just as tax-efficient as buying shares or bonds. If you use funds already within your pension (or sell another asset), then you would have already received the current level of tax relief, so won’t miss out. Rules may differ in the US with a Gold IRA.

Another alternative is to purchase tax-free gold coins outside of your pension. These coins are both VAT exempt and Capital Gains Tax free. Although there’s no tax relief on the purchase, these do offer the same tax efficiency as an ISA, but without the restrictive annual limits of an ISA.

Plus you can sell your tax-free coins any time you wish, unlike pension assets which are ‘locked up’ until the age of 55.

One thing’s for sure, if pension tax relief is reduced in the budget, many savers will start looking at alternative, safer havens for their cash, such as gold investment and property – pushing up the prices in both asset classes.

Insider's Guide to gold and silver

Tax-efficient precious metals

If you’re concerned about these possible changes and the continually evolving pension rules, then you should consider being tax efficient in other ways.

With the global economy and traditional equity markets taking a significant downturn in early 2016, precious metals could provide you with tax-efficient, market protection – but only if purchased correctly.

We are specialists in UK based, tax efficient precious metals. Our 4 main product categories are Silver, Tax free Gold, Pension Gold and Gold Savings – all of which have been specifically designed to maximise tax efficiency.

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Chinese New Year – 3 reasons China’s gold economy is still shining bright

Chinese New Year – 3 reasons Chinas gold economy is still shining bright

The Chinese economy has been well publicised of late, after a tumultuous 2015 and with increased volatility marking the start of 2016 trading. All thoughts of the economy will be on hold in early February however, when Chinese New Year is celebrated, on Monday 8th.

This year is the Year of the Monkey and the Chinese will mark the celebration with the usual mixture of gifts, holiday, family reunions and public celebrations.

Gold plays a very traditional role in Chinese New Year and features in many families celebrations, in one way or another. You can join in the tradition of Chinese New Year yourself with our options for buying gold, whether for your own investment or as a gift.

Insider's Guide to gold and silverGold gifts to close relations

Gold is considered a symbol of wealth and prosperity within China, which means you can rarely go wrong with giving it as a gift on big occasions. Having said that, the Chinese consider gifts such as necklaces to be the symbol of an intimate relationship, so take care youre giving the right gift to the right person!

Chinese New Year red envelopes

Red envelopes are a symbol of Chinese New Year and, of course, they contain money! No gold included unfortunately (excluding the lettering, see below), but the envelopes usually contain crisp new monetary notes. Numerical amounts are important. The Chinese will never give an amount ending in 4 (which has connotations of death), but frequently give amounts ending in 8 or 9 (fortune and longevity).

Gold lettering

Red may be the colour of Chinese New Year (specifically, this year, its the Red Fire Monkey) but the red is traditionally emphasised via gold lettering. To complement the lettering, firecrackers and strips of red paper are decorated with gold symbols, which typically form spring couplets of four chinese characters, known as Hui Chun.

However, Chinas relationship with gold goes far beyond gift giving and decoration at New Year. The worlds second largest economy, by GDP, is intrinsically linked to gold around the world, in a variety of key ways.

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China is the worlds 2nd largest gold buyer

2013 saw China become the largest, global purchaser of gold and experts predict that the Chinese appetite for gold is on the rise. However, India marginally wrestled the crown back from China in 2015 to regain its top spot. By 2017, its predicted that China will collectively be purchasing 1,350 tonnes of gold, up from the 2014 level of 1,132 tonnes, so its expected the top consumer crown may switch again.

China produces more of the worlds gold than any other nation

South Africa was, for many years, the worlds leading gold producer, but recently China and other countries have surpassed South Africas output. In 2014, China was the leading gold miner, extracting 450 tonnes of the global total of 2,860. Australia, in second place, produced 270 tonnes.


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Relationship with GDP

As mentioned, China is the worlds second largest economy by GDP which, as an economic measure, can impact gold in a number of ways. Debt to GDP, for example, is a common measure of strength in an economy and, over time, the measure has been shown to impact the gold price.

As ever, gold is a safe haven for investors and a recommended option for balancing & securing your investments. In times of uncertainty, as more investors choose gold, the price has historically risen.

If youd like to find out more or celebrate Chinese New Year by purchasing some gold, then you can download our free Guide to Investing in Gold and Silver, simply by clicking here. Or get in touch directly on 020 7060 9992.

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New Year Health Check: Does your portfolio need gold?

Financial New Year Health Check

A New Year health check is top of most people’s priorities in January. It’s the time of year where we take a look at our waistlines and consider dusting off the treadmill and the dumbells! Most of us are adept at making personal health resolutions (though, perhaps not so good at keeping them) when, perhaps we should also be reviewing our financial health….

The momentum of a new year should be harnessed to re-appraise your finances, and assess your investment and savings plans for the future. Maybe you could do with saving a little more, or perhaps this is the year to rebalance your pension? If you assess your financial situation, you’ll establish where you can make small changes to optimise your assets.

Annual reviews are common in financial services, as twelve months may have seen drastic changes to your income, and your investments may have gone up or down. An annual check helps you reassess your own personal plans and take appropriate action.

If you don’t currently own any gold or silver, the new year is a good time to make enquiries into purchasing some and protecting your other assets. Gold and silver prices are currently at a 6 year low, so if your portfolio could benefit from some balance, now is a great time to make that change.

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Ongoing market turbulance

A slowdown in the Chinese economy and ongoing terror alerts, are threats which could increase the volatility of equity and property-heavy portfolios in 2016. Protecting against these threats, with gold or silver, is considered by experts as a sound investment strategy, as they provide balance to a mixed portfolio of assets.

If you already hold precious metals as part of your portfolio, it may be wise to review your holding, relative to your other assets. You may wish to increase your percentage of gold or silver, to protect your other assets from sharp market falls.

The optimum ratio of gold or silver to hold in your portfolio of investments, will vary according to the individual and the market conditions. Frequently reviewing this is key to success. Reviewing and rebalancing on a regular basis ensures your ratio is optimised, and is good investment practice, as the value of all investments will rise and fall over time.

If you’re considering getting into shape this new year, I’m afraid we can’t offer treadmills or dumbells, but we can help with the financial shape of your New Year health and offer assistance with gold and silver. We provide tax-efficient ways of adding these to your portfolio, whether it’s your pension, nest-egg or regular savings.

You can contact us via any of the methods listed here, or if you would like to know a little more about investing in gold and silver, you can download our guide here.

Insider's Guide to gold and silver