The price of gold is currently at £992.15 per ounce as the Pound Sterling continues to struggle against the US Dollar. The Pound hit a two-month low yesterday, closing at $1.2949, and today its fortunes have continued to decline, now hitting a 10-week low of $1.2879.
The big reason for Sterling’s losses is the gains made by the Dollar Index, which compares the USD against its big six currency rivals (including GBP). The index is at a 22-month high of 98.25, and only four points short of its all-time high of 102.95 points.
The US Dollar’s gains are a result of a surprising turnaround for the American economy, which is consistently posting solid financial figures in terms of GDP growth, wage growth, manufacturing, and unemployment levels. In the aftermath of the longest ever Federal shutdown, the US economy looked fragile, and had the threat of the trade war with China to worry about also. Fast forward to April and the forecast for Friday’s Q1 GDP figures is growth between 2.1% and 2.5% - a far cry from the 0.2% predicted in February.
This is not to say the US economy is perfect; the Yield curve inversions aren’t so threatening but are still off track and indicating a future recession, and the repeated line that trade talks with China are ‘going well’ is almost anti-news; a bluff to appease uncertain investors.
The Dollar’s performance in 2019 will be likely to drop throughout Q2, and this should benefit the Pound (amongst others). US companies increased inventories in Q4 2018 ahead of tariffs planned for the new year. These tariffs never appeared, so the overstocking should result in a decrease in inventory demand between April and June.
The longer term concerns for the US are that the lukewarm economy will, eventually, max out. With employment and business growth as high as they’re going to get, the expectation is we will see tax revenues fall and federal spending for entitlement claims rise. John Mauldin wrote an article for Forbes saying he predicts “an unprecedented crisis that will lead to the biggest wipeout of health in history” and while that might be a bit overdramatic, there certainly is a worry that the Treasury bond yield curves don’t lie and that the US economy will be hurt the trifecta of the trade war, low taxes, and a rapidly rising national debt.
Today's gold price in GBP, detailing a £9.75 price rise per ounce.
The Pound’s struggle is slightly unfortunate, in that it had been performing better following the Brexit extension agreed with EU leaders. The longer term confidence made Sterling a currency to back once more – especially when Eurozone confidence is so low and hurting the Euro. The reality though, including the most recent data, is that the Pound has fallen by 1.65% against the Euro in the past month, and by 1.91% against the US Dollar.
Brexit is also beginning to reappear as a weighing factor on Sterling. Prime Minister Theresa May reported that negotiations with the Labour Party were ongoing and serious but spoke of the difficulty involved and hinted that little progress had been made. Another rumour circulating at present is that the PM is pushing for a fourth Meaningful Vote on her Brexit deal next week, now that MPs are back from the Easter recess. The expected defeat were this to happen is what has added to the Dollar’s pressure on the Pound, but in reality the suggestion could be a bluff; an act of internal party manoeuvring as May’s local constituency weighs up an attempt to remove her as their MP. There was one bit of good news for Theresa May yesterday though: the 1922 Committee’s executive members voted to maintain the current Conservative Party rules that mean May cannot be challenged until December. The vote passed nine votes to seven.