Gold In GBP Up 43% YTD – “Massive Twin Deficits” To Impact UK Assets

Gold in GBP has risen another 3.5% in the last 3 trading days as the British pound continues to be “pounded” on international markets. Gold in GBP terms is now 43% higher year to date and has risen from £716/oz on January 1st to £1024/oz today.

Sterling is now the worst performing major currency in 2016 and gold the best.

Gold in GBP (10 Years)

The pound has completed its worst four day performance since Brexit and the pound remains considerably weaker versus the dollar, euro and gold since the Conservative Party conference, when Theresa May promised to trigger article 50 within six months.

Heavy losses sent sterling down by another 2 per cent yesterday to below $1.21 against the dollar, while against the euro, the pound fell below €1.10.

The pound has bounced back a little today but market participants are increasingly alarmed at the political prospect of a severe rupture between the UK and EU. All the focus has been on the real risks posed by a “Hard Brexit” but another major risk is being greatly underestimated. There is also the significant risk posed by the very poor financial situation that the UK finds itself in – with its massive twin deficits.

HSBC’s respected currency analyst David Bloom warned in a note:

“the question we have asked hundreds of investors throughout the world is do you want to buy a currency that has massive twin deficits with an unknown political direction and for that risk you can get zero rates?”

UK gilts have come under selling pressure in recent days and the yield on the 10 year is now at 1.03%.

The UK current account and budget deficits combined are around 10% of UK GDP. The UK budget shortfall was 33.8 billion pounds ($44 billion) in the first five months of the 2016-17 fiscal year. The UK budget deficit for August alone was £10.5 billion, higher than economists forecast.

Kit Juckes at Societe Generale in London warns that the demise of the UK currency could soon start…..

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