EDITOR’S NOTE: Gold’s luster as a monetary safe haven tends to shine when all other instruments of monetary value darken. In the UK, where the pound has endured a massive plunge following PM Liz Truss’ announcement of a Reaganesque tax cut program, retail demand for gold has exponentially skyrocketed to a point where dealers are now running out of coins and bullion. Luckily for UK buyers, gold is still hovering at bargain levels, partly thanks to the US Federal Reserve whose rate hikes helped elevate the dollar against all major currencies. An interesting thing to note: when absolute trust in fiat is a standard assumption, the traditional safe haven would be the US dollar. We don’t know how much dollar-buying is taking place at the moment, but the level of gold-buying, at least among UK retail investors, is notable. What is this telling us about the state of the dollar in relation to gold? And are we going to see a similar flight to gold in other countries as inflation continues to ravage the purchasing power of their domestic currencies?
Bullion priced in sterling came close to a record last week
Brokerages see surge in demand from British retail investors
When the pound slumped as Kwasi Kwarteng presented his mini-budget, some Britons rushed to the safety of a haven that’s recently lost its luster: gold.
As the UK currency slid to an all-time low early Monday, bullion priced in pounds climbed close to a record. That would typically encourage selling and deter buyers, but this time round the turmoil in British bond and currency markets increased the allure of the precious metal.
“Buying has increased exponentially,” said Ash Kundra, who runs coin dealer J Blundell & Sons in London’s historic Hatton Garden jewelry quarter. “I keep running out of coins, I keep running out of bars.”
The rush for gold in the UK contrasts with the bearish sentiment that’s seen dollar prices for the precious metal slump by more than 20% from a March peak, as the Federal Reserve’s aggressive monetary tightening makes the non-interest-bearing asset less attractive. Still, bullion’s status as a hedge against inflation and currency debasement is keeping demand from retail investors strong.
While the pound has recovered over the past few days, after the Bank of England was forced to intervene to prevent a bond market meltdown, the biggest set of unfunded tax cuts in half a century continues to reverberate.
At BullionVault, a UK-based brokerage, British users opened accounts to buy bullion at more than double the usual rate this week.
“We’re seeing a lot of new UK interest,” said Adrian Ash, head of research at the firm. “The interest rate and inflation crisis is global, but gold is saying that the UK has put itself right in the eye of the storm.”
Still, Britain’s gold bugs are unlikely to have much impact on global prices. UK consumers bought 15.5 tons in bars and coins last year, just over 1% of the global total, according to the World Gold Council.
Even before the government’s fiscal policy bombshell, the anxieties generated by soaring energy bills, food inflation and higher mortgage rates were pushing more Britons to leverage their gold.
“We anticipate we will continue to see an upward trend in people using gold as loan collateral in the coming months whilst this period of extreme uncertainty exists,” said Jim Tannahill, managing director of London-based pawnbroker, Suttons and Robertsons. Over the past few weeks, he has seen a 40% increase customers seeking to borrow against their gold collections.
Originally published on Bloomberg.