07
Oct
2016

Sterling Gold Surges 5% In One Minute “Flash Crash” – Up 1.7% In Week As Gilts Sell Off

Sterling gold surged 5% in less than a minute overnight in Asia with prices rising from £994/oz to £1,043.40/oz as sterling had a massive “flash crash.” Sterling plummeted in the second biggest fall in its history – only slightly less than the collapse after the Brexit vote.

Despite gold’s peculiar, sharp fall in dollar terms on Tuesday and 4.1% loss for the week, sterling gold is another 1.7% higher this week – from £1,010/oz to £1,027/oz –  again showing gold’s importance in hedging against currency devaluation.

sterling_gold_daily_2016Gold in Sterling – 24 Hours

The latest sterling crash heightened concerns about the vulnerability of the British pound due both to “Hard Brexit” concerns and the outlook for the debt laden UK economy.

The pound collapsed about 10 percent from levels around $1.2600 to $1.1378 “in a matter of seconds” according to Reuters. The pound recovered most of the falls and most analysts said it was due either to a “fat finger” trade or more likely the automated algorithmic computer trades that now dominate the increasingly casino like, global foreign exchange market.

 

Thomson Reuters, which owns the Reuters foreign exchange brokerage platform RTSL, said a particular trade had been canceled and that the low for sterling was revised to $1.1491 – still a near 10% fall versus the dollar and the weakest level for sterling since 1985.

sterling_gold_2016Gold in Sterling – 1 Week

The fall coincided with comments by François Hollande reported by the Financial Times that European leaders should take a “firm” negotiating stance with the UK on Brexit.

The pound’s pounding added to pressure on UK government gilts, pushing 10-year bond yields 10 basis points higher to 0.978 percent, their highest since the days after Britain voted to leave the European Union on June 23. UK 10 year gilts have been sold off aggressively this week with the yield rising from 0.733% to 0.978% at 0935 British Standard Time (BST) this morning. 10 Year gilts have risen from 0.518% to near 1% today.

sterling_giltsUK Govt Bonds 10 Year Note Yield (Bloomberg)

Oil in sterling terms has surged in recent months and is up nearly 50% in just six months – from £27.70 per barrel to over £40 per barrel today. Inflation is set to surge in the coming months. Consumer inflation has remained low but the price of food, energy and other goods is likely to surge in the coming months. The plummeting pound will put upward pressure on the consumer price index (CPI) in medium term as producers face higher input costs. Already import prices in the UK are rising sharply as raw materials become more expensive.

Import prices were 7% higher  in September than in August 2015 – due to the tumble in the pound following the Brexit vote.

Market participants discounted the possibility that the massive sell off was due to a very large institutional seller – hedge fund, bank, sovereign wealth fund or central bank – placing one massive sell trade. In an age of financial warfare, currency wars and very elevated geo-political tension between western powers and China and particularly Russia, this is a possibility. Indeed, James Rickards, author of ‘Currency Wars’ and the ‘The New Case for Gold’ warned “British Readers” of Bill Bonner’s Daily Reckoning in an email just yesterday of “a 350,000-Point Shock To The Currency Markets:”

British reader, you are uniquely positioned to potentially profit from what could be one of the biggest shocks to the currency markets we’ve seen since Brexit…

It’s a move that could – if it plays out as I expect – be as huge as 350,000-points.

That’s not a mistake or a typo… we’re looking here at a fundamental change… an audacious attack… the likes of which we haven’t seen since the height of the cold war in the 60s.

Gold dealers in the UK have reported a surge in account openings and a sharp increase in gold sales. We saw quite a sharp increase in demand after the price fall in Tuesday and that has continued this week. Investors see value in gold at these lower levels and this latest spike in sales is due to concerns about Deutsche Bank and other European banks and the outlook for sterling and the UK economy due to the increased possibility of a “Hard Brexit’.

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.

Sterling silver is now 50% higher year to date – from £9.39/oz to £14.03/oz – and acting as a near perfect hedge against the rise in oil prices.

Sterling gold is now 43% higher year to date – from £716/oz to £1,026/oz – and protecting UK investors and savers from the devaluation of sterling – see Sterling Gold Rises 1.3% as Sterling Slumps On ‘Hard Brexit’ Concerns, Up 36% YTD

Inflation is beginning to raise its ugly head, while economic growth remains weak. There is a whiff of stagflation in the air …


Buy Gold and Silver Today

News and Commentary

Wounded Gold Bull Market Steadies After Worst Slump in 3 Years (Bloomberg)

Gold edges up as bargain hunters step in after falls (Reuters)

Fed Hike Shouldn’t Shake Investor Faith in Gold, Says Mine Chief (Bloomberg)

Gold steadies after extending losses to lowest since June (Reuters)

Banks must face U.S. gold rigging lawsuit (Reuters)

 

Video: Gold’s “Path Of Least Resistance Is Up”, Silver More Potential (Bloomberg)

Deutsche Shows Banking Remains “Accident Waiting To Happen” – Wolf (IrishTimes)

Deutsche Bank Brings Too-Big-to-Fail Quandary Home to Merkel (Bloomberg)

Gundlach: “Deutsche Bank Will Be Bailed Out But What About Credit Suisse” (ZeroHedge)

Gold & Silver Smash Was Orchestrated To Bailout Shorts (KingWorldNews)

Gold Prices (LBMA AM)

06 Oct: USD 1,265.50, GBP 994.30 & EUR 1,131.23 per ounce
05 Oct: USD 1,274.00, GBP 1,001.11 & EUR 1,134.37 per ounce
04 Oct: USD 1,309.15, GBP 1,026.90 & EUR 1,172.21 per ounce
03 Oct: USD 1,318.65, GBP 1,023.40 & EUR 1,173.99 per ounce
30 Sep: USD 1,327.90, GBP 1,025.01 & EUR 1,187.67 per ounce
29 Sep: USD 1,320.85, GBP 1,016.92 & EUR 1,177.14 per ounce
28 Sep: USD 1,324.80, GBP 1,020.10 & EUR 1,181.06 per ounce

Silver Prices (LBMA)

06 Oct: USD 17.76, GBP 13.98 & EUR 15.88 per ounce
05 Oct: USD 17.80, GBP 13.99 & EUR 15.86 per ounce
04 Oct: USD 18.74, GBP 14.68 & EUR 16.78 per ounce
03 Oct: USD 19.18, GBP 14.89 & EUR 17.07 per ounce
30 Sep: USD 19.35, GBP 14.92 & EUR 17.33 per ounce
29 Sep: USD 19.01, GBP 14.61 & EUR 16.95 per ounce
28 Sep: USD 19.12, GBP 14.69 & EUR 17.05 per ounce


Recent Market Updates

– Gold Buying ‘Opportunity’ After Surprise 3.4% Drop
– Deutsche Bank “Is Probably Insolvent”
– GBP Gold Rises 1.3% as Sterling Slumps On ‘Hard Brexit’ Concerns, Up 36% YTD
– Why Krugman, Roubini, Rogoff And Buffett Hate Gold
– ECB Refused “To Answer Questions” – Deutsche Bank “Systemic Threat” Is “Not ECB Fault”
– Euro “Might Start To Unravel” If Collapse Of Deutsche Bank
– Do You Really Own Your Gold?
– “Gold Will Likely Soar To A Record Within Five Years”
– Savings Guarantee? U.N. Warns Next Financial Crisis Imminent
– Gold Up 1.5%, Silver Surges 3% – Yellen Stays Ultra Loose At 0.25%
– Trump and Clinton Are “Positive For Gold” – $1,900/oz by End of Year
– Gold Bugs Rejoice – Central Banks Think You’re On To Something
– ‘Hard’ Brexit Looms For Ireland

Buy Now To Lock In Lower Gold and Silver Prices

Mark O'Byrne
Executive Director