Daily Brief – Gold

Gold

Last year’s tremendous run up on Gold was largely fuelled by Central Bank purchases. The reasons may vary as to why Central Banks buy Gold at any one-time e.g. defensive hedging, rebalancing of asset allocations, or the acquisition of an appreciating asset, but the main rationale for them holding it is to be able to deploy or sell it in times of need. In recent returns, it is clear that some of those countries that were the largest buyers last year have taken the opportunity to lighten their holdings in Q1 2026. For example, Turkey has reduced its holding by 30 tons and used the proceeds to defend the Lira as well as meet its increased energy bill. Russia has also reduced its holding to help fund its budget deficit exacerbated by the costs of funding its war in Ukraine. It remains to be seen whether Gold can make much progress from here given the higher yields available on short term assets such as US Treasury Bills but without the stimulus of continued Central Bank buying, it looks as if it will be an uphill task – unless of course geo-political strife increases and there is a defensive rush in which case a whole different picture emerges.

Gold USD 4809.

UK Risk

Far be it from us to sell the UK short when we are already so well represented in that department by the Chancellor of the Exchequer who has apparently been in pursuit of that dubious aim this week in Washington, but it is worth looking at what the UK currently faces: the IMF has cut its growth forecast for the UK to 0.8%; UK Bond yields have risen sharply, raising borrowing costs with UK Gilts now yielding 4.20% for 2 years; inflation risk has risen sharply due to soaring energy costs. All that is before the political risk is factored in both domestically, given the impending local elections next month and the international political ramifications of the increasingly fractious nature of the UK’s relationship with the USA and the no small matter of the disruption in the energy supply. Given all that, GBP at its current levels might be considered as being fully priced.

GBP/USD 1.3530.

China

As the blockade or rather blockades since both Iran and the USA appear to have their own blockades of the Strait of Hormuz continue, the pressure will weigh on China with its economic dependence and consequently its voracious appetite for oil despite the reserves that it built up before March 1. China will be as keen if not keener than the USA to achieve a diplomatic solution and cessation of hostilities to restore the supply of oil and energy products. During all the noise from the White House, you may have missed the suggestion from POTUS that China should intervene and seek to pressure Iran to agree to an end of the war (on the USA’s terms of course). Next month President Trump is due to meet with President Xi of China and if a solution has not been found by then, it is all but nailed on that the two Premiers will have an over-riding common interest to restore the free passage of energy through the Strait of Hormuz.

EUR/USD 1.1779.

Only Fools and Horses

Seasoned readers who recall the 70’s and the sitcom only Fools and Horses will think fondly of Del Boy trotter who together with his less than sharpest knife in the drawer brother Rodney invariably bought and failed to sell fake goods “down the market.” The counterfeit industry remains even stronger in these days of cost-of-living challenge, but the toys are just as dangerous to children and other goods represent poor value. None more so than the not quite right brand-named perfumes which invariably are, we learn, extracted from horses and in particular, largely consist of horse… urine.

EUR/JPY 187.56.

Tequila Sunrise

This day in 1973 West Coast band The Eagles released their second album, Desperado which had a plethora of great songs including this one which captured those more innocent days of 1973 as well as being a decent tune.

It’s another tequila sunrise
Starin’ slowly ‘cross the sky
I said goodbye
He was just a hired hand
Workin’ on the dreams he planned to try
The days go by

Every night when the sun goes down
Just another lonely boy in a Texas town
And she’s out runnin’ ’round

She wasn’t just another woman
But I couldn’t keep from comin’ on
It’s been so long
Whoa, and it’s a hollow feelin’
When it comes down to dealin’ friends
It never ends

Take another shot of courage
Wonder why the right words never come
You just get numb

It’s another tequila sunrise
Wondering if I’m goin’ wise
Or tell a lie

I’ll love to go to Mexico
Somewhere where the pace of life is slow
And there’s no one there, I know

Have a Great Weekend!

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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