Labour have secured the expected majority to win the 2024 general election, removing the Conservatives from Downing Street after 14 years. As polls predicted, Sir Kier Starmer is now Prime Minister of Great Britain with 410 seats so far going to Labour.
With the victory predicted by polls for several months now, there has been only minor reaction so far in the markets, with the results largely priced-in. The pound has strengthened slightly this morning, as markets welcome what will presumably be a more stable government compared to the increasingly chaotic infighting of the Conservatives since 2019.
From a longer-term perspective there is plenty of uncertainty over the direction Labour will take, and the impact it will have on the country and the pound. On the global scale it is important to bear in mind that domestic policy in the UK will not have a huge impact on gold prices globally; it is the dollar, financial crises, geopolitics and war, and other global factors that will truly drive the price higher or lower.
One of the possible policy changes mooted prior to the election by Labour that is of key interest to investors is Capital Gains Tax. This tax on profits when selling/gifting items has already become harsher in recent years under the Conservatives, with the annual CGT allowance reducing from £12,300 in the 22/23 tax year, to just £3,000 as of the current tax year. For investors this means paying more tax on even relatively small amounts of profit.
Speculation has been rife however that Labour may tighten CGT further, bringing the rate of the tax in line with income tax. For the basic income tax band that could mean CGT going from 10% to 20%, and for the higher income tax bands that would mean CGT rising from 20% to 40%/45%. Ultimately for investors, that again means more tax to pay, on even more of their profit when combined with the Conservative’s allowance reduction.
The policy is far from certain however and hasn’t been confirmed by now-Chancellor Rachel Reeves. Compared to Income Tax, National Insurance and VAT however, (all of which Labour have pledged not to raise) it is considered an easier target to generate further income from CGT. Labour could of course further reduce the annual CGT allowance, instead of – or in combination with – the speculated rate change. Only time will tell on that front, but we will keep customers informed on any key policy announcements from the new government that could impact investments.
For UK investors then, this is a good time to keep in mind that UK coins are exempt from all Capital Gains Tax when selling, due to being UK legal tender. That means gold Sovereigns, and gold/silver Britannia coins (as well as other Royal Mint coins such as the Tudor Beasts, Myths & Legends and more) are exempt from the potential increases detailed above.
Away from the UK, gold and silver have both seen gains this week on further rate cut hopes in the US. In a speech this week, Fed Chairman Jerome Powell indicated that inflation is heading in the right direction, and the US economy is beginning to slow. The dovish tone raised hopes for a rate cut and saw the dollar drop in value accordingly.
Gold rose to a high of £1,855 per ounce and is up so far for the week. Silver saw some strong gains after struggling in recent weeks, jumping 5% on Wednesday and is still holding up above $30/£23.75 for a gain of 3.2% for the week. Silver hasn’t closed above $30 for a few weeks now, so a close above this key level for the weekend would be positive for the metal having bounced back several times in June and into July.
Sunday will see the conclusion of the French elections, with the right-wing National Rally party currently expected to not secure an overall majority, but still scoring a significant vote share that will leave the French government split. After a disastrous TV debate against Donald Trump, it is unclear if President Joe Biden will even stand as the Democrat nominee by November despite his insistence he is up to the task. Whoever does stand, the US election looks set to be as contentious (or even more so) than in 2020 and will result in lots of uncertainty for the end of the year. Gold and silver have held up remarkably well following their recent rallies, leaving them well poised to push onto new highs.
