'Game Changer' For Gold In UK As New Regulation
Submitted by Tyler Durden on
07/18/2012 09:15 -0400
'Game Changer' For Gold In UK As New Regulation Favours
Today's AM fix was USD 1,579.50, EUR 1,288.65, and GBP 1,012.57 per
Yesterday’s AM fix was USD 1,595.00, EUR 1,296.85 and
GBP 1,020.47 per ounce.
Silver is trading at $27.09/oz, €22.23/oz and £17.43/oz.
Platinum is trading at $1,415.75/oz, palladium at $574.18/oz and rhodium
Gold fell $7.80 or 0.49% in New York yesterday and closed at
$1,581.70/oz. Gold dropped off in later trading in Asia and then
recovered losses for the open in European trading prior to further
weakness where it is trading just below $1,580/oz.
Cross Currency Table –
Gold hovered near $1,580/oz today after dropping marginally the
previous session when U.S. Federal Reserve Chairman Ben Bernanke gave no
clues of any monetary stimulus measures.
However the trading action was positive with gold falling sharply
prior to seeing a v shaped bounce back to go positive on the day prior to
weakness at the close.
Bernanke reiterated once again the stance that the Fed is prepared to
take further action should the economic conditions worsen, but offered no
clue on the timing of such action.
We have long said that the conditions would worsen and QE3 was
Market participants and traders will wait for Bernanke’s testimony
at 1400 today for more clues but those with a more long term horizon will
again diversify on the dip.
Bullish for gold was the Fed chairman’s admission that policy
makers are studying options for further easing that could be deployed.
Tools available include further purchases of assets, reducing the
interest rate on bank reserves kept at the Fed and altering its
communications on the outlook for rates.
The Dollar Index, a gauge against six counterparts, fell for a fourth
Gold may also receive safe haven buying from the LIBOR scandal and
crisis which deepened yesterday when Bernanke’s testimony conflicted
with the Bank of England’s King and Bernanke appeared to admit that
Fed employees were involved in the manipulation of Libor.
Bernanke said yesterday that “[In 2008] there was active effort to
report to all relevant policy makers.” While King had said that
“the first I knew of alleged wrongdoing ... was two weeks
Citi, Bank Of America, and JPMorgan appear to be set to be dragged
into ‘Lieborgate’ as Congress is expanding the Libor probe to
the big three U.S. domestic banks.
Also extremely bullish for gold was Bernanke’s admission that
Libor is “structurally flawed” and an international effort
would be needed to restore the rate’s credibility as the leading
benchmark for mortgages, derivatives and corporate lending around the
The Libor scandal is further eroding confidence in the global financial
system and will lead to safe haven gold demand.
While official inflation statistics continue to show inflation as
benign, inflationary pressures continue to build – especially with
regard to the essential that is food.
Global Commodity Prices & Data
Year to date, food staples such as corn have risen by 18%. Soybeans have
Bread is set to get even more expensive in the coming months as wheat
prices have surged 34% year to date. It is worth remembering that soaring
food and especially food prices led to the ‘Arab spring’ and
the various popular revolutions in the Middle East and North Africa.
Hungry people do not stay hungry for long. People suffering from
inflation and receiving very low yields on deposits in unsound banks will
continue to turn to gold as a store of value.
'Game Changer' For Gold In UK As New Regulation Favours Gold
Gold as an investment or savings mechanism has been frowned upon by the
financial services industry in the UK and internationally for many
This was due to the bursting of the gold bubble in 1980 (when Volker
increased interest rates to nearly 20%), the poor performance of gold in
the 1980’s and 1990’s and the superior performance of cash,
bonds and equities in that 20 year period.
XAU/USD Rate – (Bloomberg)
It was also due to the fact that gold bullion was
not lucrative for financial advisers and financial institutions such as
stockbrokers and banks. Gold bullion is bought as a long term investment
or store of value and as financial insurance. It is normally bought and
kept and owned by the owner for a long time – even passing it onto
This means that financial institutions do not make continuing
commissions which is their stock and trade. Gold bullion is also a very
low margin business when compared to structured products and the many
investment products with non transparent and often very high charges and
However, the poor performance of the financial services industry with
a series of misspelling and other scandals and the abject failure of much
of the industry to have the fiduciary interest of their clients at heart
means that the UK’s FSA is set to bring in legislation that will
protect the retail investment public.
The Financial Services Authority (FSA) primary role is to make retail
markets for financial products and services work more effectively, and so
help retail consumers to get a fair deal.
In June 2006, the FSA created its Retail Distribution Review (RDR)
programme which they are enacting in order to enhance consumer confidence
in the retail investment market. The RDR has a target for
full-implementation of 31 December 2012.
The RDR is expected to have a significant impact on the way in which
financial services are delivered to retail investors in the UK. The
primary delivery mechanism of financial services to retail customers is
via approximately 30,000 Independent Financial Advisers (IFAs) who are
authorised and regulated by the FSA. They are expected to bear the brunt
of the force of the RDR.
Gold bullion is set to benefit from the axing of commission for IFAs
and the implementation of the RDR “should be regarded as a game
changer” for gold as an investment in the UK, according to the World
In its latest report ‘Gold as a
strategic asset for UK investors’, the World Gold Council
rightly points out that the current commission structure in the UK
narrowed the range of products recommended “which has been
suboptimal for clients’ risk preferences and diversification
The World Gold Council backs the new regulation, arguing that it will
lead to a broader range of assets including gold being recommended by
“Re-focusing the advisory community and the clients it serves on
the importance of asset allocation decisions, not just product selection,
sits at the heart of wealth protection” it correctly says.
“Encouraging a broader approach to investing across a wider range
of asset classes, based on an understanding of the long-term increase in
cross correlations within global investment assets, will be a positive
Much financial academic literature has shown how gold can serve as a
portfolio diversifier, preserver of wealth and a risk management
“During most market crises over the last 25 years, gold has
consistently increased portfolio gains or reduced its losses,”
according to the report.
Managing director of investment Marcus Grubb, says: “These
extremely challenging times mean it’s impossible to quantify the
risks for UK investors. They are facing an unprecedented combination of
threats to their assets including extreme and unexpected market shocks
that can trigger widespread value destruction.”
“As UK investors reduce allocations to traditional investments
such as equities and bonds and increasingly dash to cash, they face a
double whammy, with the potential for stagnation of capital due to the
lack of returns from cash and the increased possibility of inflation as a
result of ongoing monetary stimulation.”
“In this context, an urgent reappraisal of how to protect and
create wealth is required and our latest research reinforces gold’s
credentials as a core portfolio asset which reduces losses and preserves
The RDR regulation is another step in gold slowly going from the
fringe - with a small minority of people having any allocation to gold -
to the mainstream.
The developments in the UK are likely to be seen in other countries
with similar financial regulations and will further help position gold as
a primary asset – alongside equities, bonds and cash.
(Bloomberg) -- Malaysia Plans Mercantile Exchange for Gold, Precious
Prime Minister Najib Razak announces plan in speech in
(Bloomberg) -- RBS Says Platinum Will Average $1,650 an Ounce in
Platinum will average $1,650 an ounce in the
fourth quarter, Royal Bank of Scotland Group Plc said today in an e-mailed
“Importantly, costs have continued to increase in 2012,” the
bank said. “A simple cost-price comparison would suggest that as
much as 500,000 ounces of production capacity is uneconomical at current
prices and, as such, has the potential to be suspended. In reality
though, producers take a number of other factors into consideration
before they take such drastic measures.”