Sterling gold rose 1.3% today as sterling slumped again after the UK set a March deadline to start their ‘Brexit divorce’ proceedings from the European Union and on deepening nervousness regarding a ‘Hard Brexit’.
Theresa May’s bombshell deadline by which the UK will exit the EU given at her Conservative party conference, saw gold in sterling terms rise from £1,010/oz to £1,023/oz today and the pound hit a three-year low against the euro.
Sterling fell around 1 percent against the dollar to a seven-week low of $1.285 and a three-year low against the euro of 87.47 pence per euro.
Gold in sterling terms is now just 3.3% below the recent price highs of £1,057/oz seen in early July when gold surged in panic buying after the Brexit vote.
GBP gold is just 13% below the all time record nominal high in sterling terms of £1,161/oz, reached on August 24, 2011. Gold bottomed at £700/oz in July 2015 and has seen a series of higher lows and higher highs since then.
It is 46% higher from those lows and up 36% higher in sterling terms year to date. It is in a new bull market and price dips should be used to accumulate on weakness.
Gold is also being supported by concerns about Deutsche Bank, and whether Europe’s largest bank in the EU’s largest economy, is systemic, and potentially the EU’s ‘Lehman moment.’
Germany’s biggest lender and bank and the bank with the largest derivatives exposure is hoping to reach a settlement with the U.S. Justice Department before next month’s presidential election for mis-selling mortgage-backed securities. It faces a fine of up to $14 billion.
Deutsche shares aren’t trading in Germany today because of a public holiday, but they will be trading on the U.S. market. An unverified media report on Friday settled market jitters and increased risk appetite again. It suggested that Deutsche and the DOJ were close to agreeing a $5.4 billion settlement and lifted the stock 6 percent. The report remains unconfirmed.
Over the long term, gold has performed well for UK buyers and protected them from the risks manifest in recent years. Over 10 years, gold in GBP terms is up more than threefold or by 222% from £317/oz to £1,023/oz. An average annual performance of over 13% per annum.
Gold will continue to act as a hedge against currency depreciation for investors and savers in the UK and indeed for investors and savers in EU and other countries. Indeed, the increasing likelihood of a ‘Hard Brexit’ increases the risks posed to the EU itself and the risk of contagion – posed to both the political and the monetary union.