Gold investors in the UK may feel that they have had a slightly disappointing year so far. However, if we look at the GBP to USD exchange rate and compare the price of gold in pounds against dollars you may be surprised to find that all is not as it seems…
Is gold stronger than it appears?
The relevance of USD
If we take a moment to reflect on the price of gold and its journey through the past year - at first glance this may not seem great for gold investors. BUT it’s important to dive deeper and look into the currency movement of GBP against the Dollar.
To UK investors buying physical gold, the USD price may seem irrelevant as we tend to buy our precious metals using pounds, and when we sell our gold, pounds are also what we get. However, gold is bought and sold internationally in USD. The dollar price is the price that gets reported and to those outside of the UK, the sterling price is irrelevant.
The price in USD and the GBP/USD exchange rate is what we should focus on just now, as this allows a fairer appreciation of the strength of gold.
Looking at the exchange rate
Looking at this year, on 30th July 2021 the GBP/USD exchange rate was 1.40 Dollars per Pound.
Last 30th July 2020, it was lower at 1.31 Dollars per Pound.
This strengthening of Sterling against the Dollar means that, at this year’s USD gold price of approximately $1830, Gold stands at £1310 in GBP.
If you compare this to last year’s GBP/USD at 1.31, then gold would actually be significantly higher this year at £1396 in GBP.
Stronger than it seems?
It is staggering that the change in exchange rate can make such a difference. It’s worth noting this during those times when people think gold is down or not doing much, it is in fact, in this case, currency changes and strengthening of the Pound keeping Gold lower than where it perhaps should or would be.
If we look in USD terms, gold has actually moved a fair bit recently. However, this has been negated due to the movement in the currency. This could quickly change, should the Dollar fall, or the Pound rise. Inflation, national debt and money printing due to the pandemic could well impact either currency a great deal. Last week saw the Dollar wobble, could this have an impact on gold?
Time to be patient
It seems we may need to hold on and be patient. As we have seen, its important to keep our eye on the pound and the dollar and how they are performing against each other. However, gold still remains a better store of value than either of them, in our (slightly biased) opinion. The dollar may be the international currency, and sterling the oldest currency in the world still in use today, but gold has been around a lot longer.
Whatever happens in dollars or sterling in the coming months will impact gold, and no doubt we will see it go up and down, but our opinion is that the physical precious metals market is not just about an increasing value asset, it’s about more than that. It’s about insurance for the future, for our financial well-being, and that cannot be underestimated.
This blog represents one person’s opinion only. Customers should conduct their own research and take advice before making an investment. We do not offer investment advice.