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July 2016 Market Review

Bank of England and Interest Rates.

In mid-July, there was much speculation that the Bank of England would cut interest rates for the first time in seven years. The move was set to have strong repercussions on both the price of gold and national and international markets alike and nearly 80% of market commentators predicted that there would be some form of change. Many suggested that interest rates could be cut to a new low and if the rate was reduced, it would have been the first change for more than seven years. In response to this, the FTSE 100 began to rise and hit an 11 month high on July 14th and the pound also began to rise and approached the highest level in more than a week versus the dollar. However, following the somewhat surprising decision that interest rates would not be cut, precious gold fell to a two-week low on as global equities stayed in positive territory.

Gold Markets Spike Following Failed Turkey Coup

Following the failed military coup in Turkey, the Turkish government said that it was in control and the number of suspected supporters who had been arrested after the coup had reached 6,000. Prior to this, on Friday the 15th of July, as news of the coup broke gold immediately began to trend higher as demand for assets perceived as safe in international markets, such as bullion, briefly spiked. In times of market turbulence, investors tend to immediately turn to assets which are seen as a ‘safe-haven’, such as gold, and although the situation in Turkey stabilised quickly, the effects on the gold market were, for a short term, noticeable. You can read more on what factors influence the price of gold here.

Gold Steady as Fed Leaves Interest Rates Unchanged

As well as the interest rates within the United Kingdom remaining unchanged, towards the end of July the US Fed elected to not lower interest rates as it said ‘near-term risks to the U.S economic outlook had diminished’. This resulted in a rise in the gold price of 1.5% to a 2-week high on a weaker dollar. On Wednesday, July 28th, gold reached a high of $1,342.18 an ounce, – its highest since July 2014. The price of gold is sensitive to rising U.S rates which would lift the opportunity cost of holding non-yielding bullion while boosting the dollar in which gold is priced.

Indian Gold Imports Decline

Physical demand in India, the world’s largest consumer after China, has struggled this year amid high prices and a running dispute with the government over new taxes and proposed reforms to the industry and in the first six months of 2016, a decrease of over 50% of official imports of gold into India was recorded.

GFMS Thomson Reuters reported a 56% decline in Indian jewellery demand to 69 mt in the second quarter compared with a year earlier. Total demand in the first half of 2016 was down 54% on the same period in 2015 to 142 mt.

This gap in imports was reported to be partly caused by so-called ‘grey market’ traders which are offering gold at a 5% discount from the daily international gold rate. As well as this, dealers have been offering record discounts to lure buyers, but demand remains bleak with customers more eager to sell old jewellery and bank profits at current high prices.

In the last two months, scrap supplies have risen substantially in the country which  has reduced the need for new imports. In an attempt to kerb this, the Indian Government is being urged to lower the import duty on gold from 10% to 5% in an attempt to reduce the supply of gold through the illegal route and encourage further buying.

Central Banks Increase Gold Buying Throughout June

Both Chinese and Russian central banks recorded a marked increase in gold purchases in June after initially slowing throughout May. The purchases of the Russian Central Bank totalled around 18 mt in June – an increase of 13 mt compared to May. In comparison to this, additions by China’s central bank totalled around 15 mt in June which means the country has added 61 mt of gold to their reserve this year. China’s total gold holdings now stand at 1,823 mt, making it the sixth largest holder of gold reserves, according to the IMF, behind the US, Germany, the IMF itself, Italy and France. Russia is the seventh-largest, at 1,481 mt, according to the most recent data.

The two countries have accounted for over 95% of total central bank purchases in the last two years, as both countries look to diversify assets away from foreign currency.

A Golden Year for Britain’s Oldest Manufacturer

The Royal Mint Limited has announced its annual results for 2015-2016, reflecting the highest revenue in the 1,100-year history of the organisation in financial terms. Significant growth in the precious metal trading activities of the company’s Bullion division made a major contribution to this outcome, with increased competitiveness in the US silver market at the core of the success.

Online precious metal trading website (launched in 2014 to enable customers to buy, store and sell bullion coins at constantly updated live prices directly from The Royal Mint 24 hours a day, 365 days a year) proved attractive to small and large investors, with nearly 20,000 accounts opened by the end of March 2016.

New bullion products introduced during the year to complement the organisation’s flagship Sovereign and Britannia bullion coins included Signature Gold, which enables investors to benefit from economies of scale by buying fractions of large gold bars. In another noteworthy development for the division, Signature Gold was one of the Royal Mint gold products to be declared eligible for holding in Self-Invested Personal Pension schemes (SIPPs).

You can read the full press release here, and access the annual report on The Royal Mint website here.


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