Golden Horizon

07 Jun 2019

UK jewellers can benefit from softening gold price and a steady pound, says David Brough.

Gold prices risked further falls in May, while we’re seeing diminished volatility in the pound since a six-month Brexit deadline extension, both of which may benefit UK-based jewellers and manufacturers looking to restock the yellow metal.

A bullish outlook for gold prices in 2019 has been tied to sentiment that there will be no more US interest rate rises in coming months, but persistently strong recent economic data from the world’s largest economy are now leading analysts to reassess that view.

Any potential renewed climate of rising US interest rates would diminish the appeal of bullion to investors, as the precious metal bears no interest or yield, and could make alternative, yield-bearing assets more attractive.

In the meantime, the pound is steadying against the dollar after the EU set a six-month ‘Halloween’ deadline for Britain to leave the EU.

A combination of weakening dollar-denominated gold prices and a more stable pound in the near term, would be potentially good news for UK jewellers and jewellery manufacturers seeking to restock the yellow metal.

The dollar has held firm after strong US labour, inflation and earnings figures in April eased concerns that the US economy may be slowing down.

Some analysts believe that although a US rate increase this year is unlikely, it could still happen if US economic data remains robust.

Gold has so far failed to stay above $1,300 an ounce for any length of time despite the US Federal Reserve (Fed), the USA’s central banking system, intimating no interest rate rises this year.

Gold dipped 0.2 percent to $1,280.61 an ounce on 1st May.

Longer Term Outlook

Potentially rising risks of a US interest rate hike later this year have instilled caution in some analysts’ longer-term forecasts for gold, with gold and forex consultant, Dr Martin Murenbeeld, predicting a cautiously optimistic year-end gold price of $1,374 an ounce, below predictions of other analysts.

“While we stand by our own forecast that gold may reach $1,400 or higher by the year end, the yellow metal’s price progress is currently looking a little more vulnerable and the Murenbeeld-weighted forecast is perhaps a more measured analysis of the present situation,” wrote commentator Lawrie Williams of bullion broker Sharps Pixley.

“There is also the fact that central banks beyond Russia and Kazakhstan have been returning to the gold buying fold – and now we see China reporting monthly increases to its gold reserves.”

An important consideration for UK-based jewellers and manufacturers planning to restock gold, will be the stabilising of the pound after the EU set the 31st October deadline for Britain to leave the bloc.

The pound has recovered as the immediate risks around Brexit fell after the postponement of the departure date.

Sterling remains stuck in a trading range, and without fresh cues on the Brexit outcome the pound was unlikely to move significantly higher.

A more stable pound will make the job of planning gold procurement less complicated, especially for smaller UK jewellery industry players who do not use hedging tools. With investors unsure of immediate drivers for the pound, volatility expectations have fallen sharply.

Disclaimer: any opinions expressed in this article are solely those of the author. This article should not be seen as investment advice.
David Brough is IJL’s precious Metals & Gems editor. He previously covered commodity markets, including precious metals, for Reuters and is editor and co-founder of JewelleryOutlook.com

 

14th June 2019, David Brough responds: The gold market moves swiftly from day to day and since the last article was written on 1st May 2019 for the June issue of The Jeweller, the reports of attacks on oil tankers in the Gulf and the Hong Kong protests, combined with weak economic data from the United States and China, have contributed to "safe haven" buying of gold. Expectations of a possible cut in U.S. interest rates and falls in the dollar, have also boosted gold prices which earlier today hit the highest level in over a year.