Gold prices slid sharply in the first half of the year, creating an opportunity for UK jewellers and jewellery manufacturers to restock the precious metal.
However, the weak pound, near an eight-month low against the dollar, complicates procurement, with volatility in the exchange rate set to continue due to global trade tensions and uncertainty over Brexit negotiations with the EU.
The confrontation between the United States and its main trading partners after President Trump announced tariffs, has led to a surge in demand for the dollar and U.S. Treasuries, instead of gold, which is often considered to be a “safe haven” in times of geopolitical uncertainty.
Gold prices were down 5.2% in the first half of the year, silver was down 6.3%, platinum was off 9.8%, and palladium was down 14.4%.
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Dollar strength looks set to continue, but its future impact on the gold price is less clear, especially if the yellow metal reclaims its “safe haven” status due to growing geopolitical tensions, an escalating trade confrontation, and rising inflation pressures.
“Inflation has been picking up, which may ultimately bring gold buyers back into the market,” Bank of America Merrill Lynch said in a report. The bank has now reiterated its forecast for gold prices to average around $1,400 an ounce in the fourth quarter.
Lawrie Williams, gold market commentator with bullion broker Sharps Pixley, said that now might be a good time to buy gold and silver. He said: “The recent precious metals weakness is largely a representation of dollar strength embellished by the American trade tariff implementation.
“The likely trade war may not be advantageous to the American consumer, but it is also seen as possibly more damaging to non-U.S. economies – notably to the EU and China – and perceived weakness in those areas is seen as beneficial to the U.S. dollar index.”
UK jewellers and jewellery manufacturers looking to restock gold, have struggled to benefit from the drop in bullion prices, due to the weakness of the pound. The UK economy grew 0.2% in the January-to-March quarter, against a preliminary number of 0.1%, providing some argument for a possible rise in interest rates in August. But the growth figure was still a weak number.
UK jewellers and jewellery manufacturers will have to get used to further volatility in the pound-dollar exchange rate as the UK government struggles to hammer out a deal with the EU, and as global trade fears mount.
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Disclaimer: this column should not be seen as advice or a recommendation for investment. Any opinions expressed are those of the author.