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24 April 2010

Could Precious Metals Perfect Storm be building for British Gold and Silver Buyers?

UK Election Polls point to Hung Parliament and Sterling crisis could follow after May 6th

"If gold isn't up at least $500 in the next six months, I will be surprised," says the Chief investment strategist at Sprott Asset Management, John Embry. Speaking on Minewebs weekly podcast this week. Embry said that the price of gold is on the rise for two main reasons. Firstly sovereign debt and secondly the spectre of Inflationary pressures, that may become Hyper Inflationary pressures.

For British Gold and Silver buyers more immediate and domestic factors may be driving their thinking. A UK general election is looming, and polls continually point to the result being Hung Parliament, which will most likely result in some kind of coalition government. The foreign currency markets are likely to react to this eventuality by dumping sterling, as the chances of a coalition government being strong enough to deal in any meaningful way with Britain’s burgeoning and structural budget deficits seems slim. Conservative Party representatives were recently on record as stating that a Hung Parliament would result in a downgrade of credit rating, economic disaster and required intervention by the IMF. Whilst other parties decried this as scare mongering, the risks to sterling should not be understated.

Bullion has delivered much better returns than shares during the last decade – and has a history of doing particularly well in election years. Though UK buyers at least may be thinking more short term and gold may be seen as an insurance against a run on the pound.

At BullionSupermarket, of the four territories operated in (US, Canada, UK and Austrailia), the UK has seen a disproportionately higher conversion rate of users using the site to buy metal to those users just passing through. While no significant premum gap is opening up yet, (just 0.73% between US and UK 1 ounce gold ingots) premiums may widen as polling day draws closer.

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