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Gold outlook and Semi-collectable gold coins | The Coin Cabinet Webinar #1 | 27 March 2020

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Here is the registration link to Webinar #2 on Friday 24 April, 8PM UK time, again on Zoom.

A big thank you to all of you who made our first webinar a huge success! Special thanks to the Silver Forum members who had lots of questions and kept the chat active. We hope all participants got some good information from it. For those who did not make it, here is what was said about the gold market and price expectations in the short and long term. 

Although this was now almost a month ago, it is still highly relevant as we are all still in lockdown in the UK, equity markets still seem to be discounting the full economic impact of the crisis and at the time of writing gold price is £1,386 per ounce and range-bound in the last month.

For those who prefer to read what was said, here are some of the questions and answers we had

Q: [Related to the fall in the gold price during the COVID-19 crisis] Why is the gold price currently not around $1800? Why have there been such fluctuations in the gold price recently?

A: One of the reasons that gold is not higher is because of the sharp dramatic fall in the oil price recently. The Russian Central Bank has actually been selling some gold at these highs, which has put a little bit of a lid on the ceiling of gold price on the very short-term horizon, because they're trying to get revenues from the increase in the gold price, because they're suffering revenues from the oil price sharp decline that the OPEC narrative that's going on at the moment.

Another thing to mention is that the value of the dollar is very important. So, there's been a crisis for funding, which I won't get too technical for people, but basically there's been a real demand for US dollars in terms of liquidity from other foreign central banks, and that squeeze for liquidity causes dollar shortages. And so people sell assets which are liquid to raise dollars. And one of those is gold. So that's why you've had some sharp declines in the gold price on one day activity.

Another reason why gold for example fell very sharply in February was there were margin calls for people that were trading equities. People that were trading equities need to pay for their leveraged trades at the end of the month, which is why at the end of February there was that very sharp one-day decline in the gold price. And then it bounced back sharply and back in early March. And in fact we've made fresh highs.

So gold is also susceptible to what goes on in the equity markets on the short-term time horizon, because particularly sensitive to the time in the month, if it's near the end of the month, don't forget the end of March is the end of the financial year, so I wouldn't be surprised to see quite a bit of volatility in gold price in the next few days, as we reach financial year end.

For example, there's huge repatriation flows from Japan, where you see currencies going back, so there's going to be a lot of volatility in the gold price. But that said, I think if you take a more strategic view of the gold price, there is a physical shortage, there is crisis, and from my point of view one of the interesting factors is the broadest money now being generated and pumped up from the US Federal Reserve increasing their balance sheet, that in time will put a huge stress on the financial system. And that's another reason I've been very concerned about the financial markets going forward. And I would look for gold as a classic safe haven play against any problems in the financial that'd emerge in the next coming two to three years.

Q: Are Sovereigns tax free?

A: All coins listed on the EU Commission’s List as well as the UK’s list of exempt gold coins [“investment gold coins”, editor’s comment] are VAT exempt. Almost every gold coin that has been made since 1800 is exempt in the UK for VAT. However, capital gains tax is only free for coins that are seen as legal tender, and that is Sovereigns, Britannias, plus some additional gold coins that were added in recent years to service the investment markets (e.g. 100 pounds coins, one ounce, 200 pounds, two ounce, and 500 pounds, five ounce coins).

Q: Do you see any government making a move like during the war of [gold] confiscation?

A: No, such extreme levels haven’t been reached yet. Depending on what will happen in the next 3 to 4 years, governments might take a different view on the gold market in general, but that remains to be seen.

Q: How is the US dollar spot being maintained or suppressed to dissuade the general public from seeing real money value?

A: There are 2 types of dollar indexes, one Latin America-based one European-based (DXY). In recent times the DXY went very strong, which means the dollar got very strong. The dollar like any currency is subject to central bank and other bank activity. So the rising demand for dollars from other central banks in the last few weeks meant that the dollar increased in value because of its scarcity. In times of scarcity people tend to sell their most liquid assets to raise funds. This was one of the reasons why people were selling gold in the recent weeks. 

Another reason was the sharp fall in the oil price. And that's why the Russian Central Bank in recent times, I may have said it earlier on in the presentation, was selling a bit of gold because of the sharp decline in the oil price.  

But there's been a huge demand for dollars from foreign central banks for their funding needs, for their business needs. But pumping all this liquidity into the system sort of calms the market. And I would actually argue from a long-term structural point of view, I think the dollar is actually going to weaken long-term now. There's a much more technical reason for that which I won't go into too much detail into but basically, I think structurally the dollar will weaken which as we know a weaker dollar is good for the gold price typically on a trend basis as well.

What's really curious is we've had a period of low inflation and gold has gone up. And everyone always perceives that gold is a hedge against inflation. Well, we've had years of little or no inflation, and gold has still gone up. So that's not necessarily true. It's more for me a haven play.

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