ANALYSIS – UK jewellers can benefit from gold price downside risk, stabilising pound
By David Brough
The following article was written by Jewellery Outlook Editor David Brough for International Jewellery London (IJL), which will take place from September 1-3, 2019. David is IJL’s Precious Metals and Gems Editor.
April 15, 2019 – Gold prices eased in mid-April and faced further near- term downside risks, while the pound stabilised after a six-month Brexit deadline extension, potentially benefiting restocking UK jewellers and jewellery manufacturers.
It had been widely felt that the main support for gold prices in the coming months could be a halt in further U.S. interest rate increases, but the latest economic figures have now called this into question.
Any potential renewed climate of rising U.S. interest rates would diminish the appeal to investors of gold, which bears no interest or yield, and could make alternative, yield-bearing assets more attractive.
In the meantime, the pound is expected to stabilise against the dollar in coming weeks after the EU set a six-month “Halloween” deadline for Britain to leave the EU.
A combination of softer dollar-denominated gold prices and a more stable pound in the near term, would be potentially good news for UK jewellers and jewellery manufacturers looking to restock the yellow metal.
The dollar held firm in mid-April after strong U.S. labour, inflation and earnings figures, as well as better-than-expected Chinese data, soothed concerns that the world’s largest economy may be slowing down, denting the appeal of “safe haven” gold.
Some analysts believe that although a U.S. rate increase this year is unlikely, it could still happen should improving economic data support such a move.
Gold has so far failed to stay above $1,300 an ounce for any length of time despite the Fed intimating no interest rate rises this year and a possibly falling dollar.
Pressured by the improving economic data, gold dipped to $1,288.40 an ounce, a one-week low, on April 15.
LONGER TERM OUTLOOK
Respected analyst Martin Murenbeeld has predicted a “cautiously optimistic” year-end gold price of $1,374 an ounce, and a 2019 average price of $1,331.
His forecast is conservative compared to other analysts who have predicted a gold price of around $1,400 an ounce at the end of 2019 but takes into consideration possibly rising risks of a U.S. interest rate increase this year.
“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 jewellers and jewellery manufacturers looking to restock dollar-denominated gold, will be widely held sentiment that the pound is expected to stabilise against the dollar in coming weeks after the EU set a six-month “Halloween” deadline for Britain to leave the EU.
The pound rallied as the immediate risks around Brexit fell after the postponement of the departure date.
The pound remains stuck in a recent trading range, and having strengthened in 2019, without fresh cues on the Brexit outcome sterling was unlikely to move significantly higher.
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.