LAWRIE WILLIAMS: In the UK gold is living up to expectations
If one reads all the headlines about gold one could be forgiven for thinking that 2022 has been a pretty disastrous year for those banking on the yellow metal to preserve their wealth, This is indeed the case for U.S. gold holders where the gold price has declined around 9%, although that is less than half that seen in most U.S. equities since the beginning of the year – even more in the NASDAQ stocks - but in the case of UK gold holders and holdings valued in pounds sterling it has been a very different story altogether due to the fall in value of the pound against the dollar so far this year. This has been a similar experience in other areas of the world where local currencies have been in strong decline against their U.S. counterpart.
In pound sterling terms, the gold price has actually appreciated by no less than 13% while the FTSE all share index for comparison has declined by around 10% over the same period. With the Bank of England following the U.S. Federal Reserve with an aggressive interest rate raising policy to fight inflation, and commenting that the UK economy is probably already in at least a mild recession, one can anticipate further equity price slippage, while the gold price can probably still hold its own making it a continuingly good wealth protection choice for investors.
Of course the UK is not the only country where the gold price has been appreciating in the local currency due to the U.S. dollar’s strength – there are many others. We have already reported on the resultant strength of the Australian gold mining sector during the most recent quarter due to the almost A$42 per ounce gold price rise during Q2 resulting from a 6 cent movement in the exchange rate between the U.S. and Australian dollars. With producer costs mostly in Australian dollars the miners mostly saw some good cost benefits. Although these would inevitably close over time, the short term advantages will have been beneficial. (see: Australian annual gold output 317 tonnes – Surbiton).
Even in the Euro, which has also seen a strong decline in currency parity against the U.S. dollar, the gold price is up a little over 6% and in the Japanese Yen up 13% - a similar level to the UK. Of the other supposedly ‘strong’ currencies, the gold price is down marginally, though, in the Swiss Franc and the Canadian Dollar, but not by as much as in the U.S. currency. In some of the world’s weaker currencies , however, gold’s appreciation year to date will have been far greater, so its wealth protection capabilities in your own domestic situation depends very much on one’s domicile.
All currencies fluctuate – even the mighty U.S. dollar and there is a feeling that it may well be flying too high at present. There is the possibility it may start to come down from its peaks when there is a realisation of quite how much the servicing of the huge U.S. debt position will cost at the higher interest rate levels currently in place, and likely to be further increased.