Gold and Silver Price Review - December 2018

Brexit

Theresa May lost a Commons vote on Brexit legal advice at the beginning of December and has been forced to publish the advice. This is the first time in history that a British government has been in contempt of Parliament.  Sterling fell to $1.2672 an 18th month low following the historic vote. Mark Carney declared the Norway solution a risk for financial stability and went on to tell parliament's Treasury select committee "We would not be comfortable outsourcing supervision of this incredibly complex and important financial sector….. one that in living memory brought the country to its knees". The Norway option would leave the UK subject to EU rules that it could not influence. To add to Mrs May's woes the ECJ claimed the UK could unilaterally end the Brexit process giving the anti-Brexit camp something to cheer about. 

On 12th December Theresa May headed to Brussels to re-negotiate what appears to be a fairly bad deal for the UK after having survived a vote of no confidence spearheaded by eurosceptic MP's. I have previously said the EU would not allow the UK to get a good deal due to a risk of contagion in other eurosceptic states. We shall see if the Prime Minister has any cards left to play apart from any deal being better than no-deal! I do hope no deal doesn't become a fait accompli if talks break down any further! We would like to direct you to Andy Serki's parody of Theresa's deal as it couldn't better sum up the mood! The ECJ rules that the UK can remain sovereign and unilaterally revoke article 50 which surely would be better than no deal if it came to it.

After a failed mission to renegotiate with the bloc businesses were reeling in horror as the government seriously considers a no-deal divorce without offering any support to adjust and make plans. Calls for a second referendum start to echo around the chambers of Whitehall and right now it's understandable that investors are avoiding the UK. I can't see this changing until the government can give some definitive answers on what will happen come the 29th March. Norway has publicly come out stating they would not welcome Britain into the EFTA and cannot understand how the UK could accept EFTA terms in their pursuit of absolute sovereignty. On the opposite benches Labour appears to offer no alternatives with Jeremy Corbyn unable to take a clear stance on the matter leaving the Conservatives the pick of a bad bunch!

Sterling

In the first week of December the pound dropped 0.4% against the dollar reaching a one-month dipping below the $1.27 mark before recovering to $1.277 as of 5th December. The main driver for this being the historic and impending Brexit vote on December 11th. The ongoing political turmoil is adding to concern that a no-deal Brexit is increasingly likely. 

Following the unsuccesful coup in the Conservative party the pound rallied climbing 1% to $1.2612. This comes after the pound reached a 20-month low of $1.2482. The FTSE 100 and FTSE 250 climbed 1.2% as most trade is in non-GBP and most companies are buffering sterling volatility rather well. Currency investors are rightly cautious and many foreign investors are steering clear for the short term at least. Regardless of what deal is struck we can expect the pound to take a bettering over the coming months. 

As of Dec 20th the pound currently trading at $1.26758 up 0.5% from last week. For 2019 analysts are forecasting the pound to trade as high as $1.59 or plunge to $1.10. This huge window cannot be narrowed due to a lack of any precedent, benchmark or clear understanding of what on earth is going to happen! 

UK Economy

The BoE has decided to keep interest rates at 0.75% amid Brexit uncertainty and this week Britain dropped to 7th place as the world’s largest economy below India. Adding to UK woes the country has been toppled as Europe's biggest private equity market as investors await clarity and focus efforts on the bloc or further afield.

Wider Economy

• US / China Trade War -Trump and Xi announce a truce following the G20 summit. As talks were private there is still uncertainty about how the truce was achieved and how fragile any agreement could be. Following the summit markets rallied before tanking today with the FTSE falling over 1%, the Dax by over 1% and the S&P 500 falling over 3%. Investors are concerned about the reality of the truce and await details on how exactly the US and China can resolve their differences. The trade war continues to turn sour with the arrest of Huawei's CFO who also turns out to be the founders daughter in Vancouver. She has since been granted bail for C$10m with allegations that involve trade with Iran but there could be a murkier side to events as the US tries to undermine Huawei's dominance in 5G technology. China has already retaliated arresting two Canadian citizens adding more fuel onto a simmering relationship. 
• Euro Challenges the Dollar - Europe steps up efforts to challenge the dollar as the world's reserve currency. Contracts in energy, commodities and aircraft manufacturing are being promoted in Euro denomination. This is in response to US threats that companies who continue to trade with Iran will be subject to sanctions after the US pulled out of the nuclear deal. Due to the fact EU business are unable to make business decisions (i.e. failing to come up with a special trade deal with Tehran) raises concerns over the bloc’s sovereignty. 
• ECB Ends QE - The expansion of the €2.6tn bond buying spree comes to an end in December 2018. It is thought interest rates will not rise until at least summer of 2019. The end of the bond buying has investors now trying to predict when interest rates will rise. 
• Italy's Budget U-turn -  Rome has agreed to cut its proposed 2019 budget deficit to 2.04% down from 2.4%. Details of how this is to be achieve remain hazy and contradict statements from The League and Five Start Movement leaders that spending plans would remain in tact. 
• FED Raises Interest Rates - Jay Powell, FED chairman, defied President Trump to raise interest rates. This triggered the biggest stock sell off on Wall Street for more than 25 years as investors choose to ignore the interest rate hike instead pinning worries on a worsening economic environment. The S&P 500 dropped 1.5% its worst drop since 1994. Europe and Asia followed suit with the FTSE 100 down 1.6%, DAX and CAC down 1.5%, the Stoxx 600 dropped 1.4% and the Topix down 2.5%. 
• 2019 Economic Slowdown - a flattening US yield curve, equity sell offs and US efforts to stifle China's rise to economic dominance sets the scene for what could be a rocky year. Investors have already made record shifts into bonds this month and if this trend continues, we expect gold prices to benefit!