Yet another rate hike is piling further pressure on the property market and homeowners, contributing to a 343% increase in people buying physical gold bullion (bars and coins) over the last week (compared to the weekly average over the last 12 months).

Josh Saul, CEO of gold investment firm The Pure Gold Company said: “The people we speak to every day are worried about the effect of another rate hike on their investments, not least what is probably their largest asset – their home. They’re taking shelter in safe-haven gold to protect their assets from a falling property market, volatile equity markets, treacherous crypto platforms and the erosion of savings in the face of 10% inflation.

“Our clients expect lots of buying opportunities when the markets recover, but right now they’re waiting out the inflation storm by buying physical gold with the view to at least avoiding a guaranteed 10% loss on cash”

“Gold has a strong history of rising when other assets fall, and it can be something of an inflation hedge, two very good reasons why demand has spiked in the last week. We often see a rush of gold buying before and after rate movements, and this one is particularly worrying because of the risk of a long recession.”

EDITOR’S NOTES

Josh Saul, CEO of The Pure Gold Company is available for interview if you require further comment. Case studies of clients who have other assets like stocks, bonds, property or crypto who are choosing to add to their gold portfolio are also available.

FURTHER DETAILS

Gold demand

TPGC clients cite many reasons for their decision to buy gold. They are concerned about the health of their investments, with inflation and the cost-of-living crisis, a global recession and growing uncertainty over jobs and rates highest on the list.

Clients are desperately seeking a hedge to all this uncertainty. Gold’s inverse relationship with declining assets and the strength it often gains during times of uncertainty are a powerful motivator for our clients.

They have to choose carefully to avoid the erosion that 10% inflation rates will wreak on their cash, but hasty investments could lose them more than that if markets, including stocks, property or crypto remain under pressure.

Many of the investment professionals who buy gold (investment bankers, analysts, lawyers) believe that buying opportunities will exist in all markets but now is not the right time. The most sensible attitude that we currently observe is the patient ability to wait for opportunities to present themselves.

Waiting actively vs waiting passively

However, the consistent opinion is that waiting passively (in cash or bonds) is a guaranteed loss to inflation whilst waiting actively (in a contrarian asset class like gold) is not a guaranteed loss. Gold has risen over 17% in the past year, while the FTSE 350 has hardly moved in the same period, with some substantial falls at certain points in the year.

Safe-haven gold

While the price of gold is not guaranteed to rise, the history of gold has proved its worth as a safe-haven asset which tends to rise when other assets are falling. Because it is a physical commodity, its value also tends to rise alongside other goods as their costs rise. This natural inflation hedge doesn’t mean that gold will directly track the rising costs of other goods, but it does have a better chance than cash of retaining its buying power.  

Our clients buy physical gold because it’s a store of wealth that provides a hedge during uncertain times (especially inflation and recessionary environments). It often increases while other asset classes fall. It is capable of being liquidated immediately and turned back into cash in order to take advantage of other opportunities and is (depending on your circumstances) completely tax free if buying and selling legal tender UK coins. 

More rate rises

The rate hike today lifted the UK interest rate by a further 0.5% to 4%. This follows a meteoric rise throughout 2022, from a long term low in late 2021 of just 0.1%. The market is factoring in further rate rises this year, potentially to between 4.50% and 4.75%. The weakness of the economy will play some part in how high rates will go in an effort to bring down inflation.

According to the International Monetary Fund, the UK is the only major economy that is expected to shrink in 2023. The Bank of England is also forecasting a long recession and a difficult recovery over 2023 and 2024. These factors will affect all asset classes and impel many investors to look to safe havens like gold to protect their assets.

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