Pound collapse sparks gold rush
The Bank of England has been forced to urgently intervene in the debt market to stem the sterling’s slide and calm investors. Even so, the collapse of the national currency has sent demand for gold soaring, leaving some dealers without stocks of coins and bullion.
The economic chaos in which the UK finds itself has been reflected in a gradual deterioration of the national currency and the stability of the country’s sovereign debt. Liz Truss, the new British prime minister who took over from Boris Johnson, announced a fiscal stimulus package to revive the economy.
It is a government plan that is expected to cost around 160 billion euros over the next five years, and which presents a series of tax cuts to generate more disposable income with the aim of reactivating consumption and economic activity. Although this economic programme could help to avoid a recession, it could generate more inflationary pressure on an economy that is suffering from runaway inflation of 10% and in danger of stagflation, i.e. high inflation, low productivity and high unemployment.
This was the view of the International Monetary Fund (IMF), which sharply criticised the tax cuts proposed by Liz Truss’s administration, arguing that the government’s plan could increase inequality and raise prices, counteracting the Bank of England’s monetary policy to curb inflation.
Punishing the pound and government bonds
The lack of specifics on how this tax cut would be financed, as well as the contradiction in fiscal and monetary policy, in which the government and the central bank seem to be going in opposite directions, has created uncertainty among investors that has caused the pound sterling to fall and the risk premium to rise.
A context of economic uncertainty that we are also seeing in other countries, where sovereign and currency assets are losing value in favour of safe-haven assets such as gold or more stable currencies such as the dollar. This scenario is especially complicated in countries such as the UK, with a trade balance deficit, which imports much more than it exports and, therefore, a currency devaluation increases inflationary pressure.
The Bank of England’s announcement that it will buy British public debt, Treasury bonds, up to a value of 72.5 billion euros, has temporarily calmed the markets and slowed the fall of the pound in the panic generated by the measures announced by the government. Even so, it is a measure to deal with the more immediate crisis that will last until 14 October. Still, it does not guarantee the financial stability of the United Kingdom, even with the last-minute reversal announced by the Truss government.
The exponential increase in physical gold buying
The tsunami of bad news in the UK bond and currency markets has increased the attractiveness of safe-haven assets such as precious metals. Gold dealers have seen demand double to the point of depleting stocks of coins and bullion. The British public has followed the same pattern we saw in Russia, as the rouble plunged and purchases of physical gold soared.
While currencies such as sterling and the euro continue to lose value against the dollar, gold’s performance in 2022 confirms not only its inflation protection, but also establishes it as the perfect antidote to falling currency values.
Despite the occasional downward trend experienced by the value of gold for a few months, spurred on by the rise in interest rates, in the first ten months of the year, its value has risen by 6.44%. In other words, a purchase of €10,000 in gold in January 2022 would now be worth €10,644, while the same €10,000 in the bank would have lost €900 to inflation.
The growing global economic uncertainty and the inability of governments and central banks to cope with a major crisis that seems inevitable, suggests that Russia and the UK will not be the last countries where a large part of the population does not trust politicians’ promises and empowers itself to secure its savings with a tangible value.
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Molt bon article.
Celebrem que t’hagi agradat. Gràcies, Manel!
A tu pel comentari, Joan!
Bon article. M’ha agradat
Moltes gràcies, Francesc!
El raconet d’or, el raconet dels catalans. El raconet del seny.
Ara només cal que ens puguem administrar aquest raconet en tots els sentits.
Vaja, sembla que hi ha un degoteig de crisis estatals on va començar a Rusia, ara passa pel Regne unit, veurem quin es el pròxim estat, però ni la crisi de Rusia ni la del Regne Unit s’han resolt sinó que han aplicat com parxes temporals, vamos que tornaran a caure pel que han dit els entessos📉
Efectivament, i a més són crisis que es van repetint al llarg del temps. Potser cal canviar el sistema de base.