Ex-Bank of England chief bullish on gold as Royal Mint unveils bullion pension plan
With the United Kingdoms Brexit referendum just weeks away and the outcome still very much uncertain, jitters are increasing on fears that the Leave faction will prevail.
But at least one prominent Brit is skeptical of claims that a UK exit from the European Union would be economically devastating. Former Bank of England Governor Mervyn King said in April that the Remain crowds predictions of huge losses to personal incomes and GDP are exaggerated. And he said in late May that hes deeply disappointed by the rhetoric coming from both sides.
And while his own vote on the Brexit issue is unknown, King has come out publically in favor of another sometimes-controversial subject: gold.
Central banks are maxed out: In comments carried in the World Gold Councils June issue of Gold Investor, King also was highly critical of central-bank monetary policies ironic, considering that he ran the Bank of England for a decade, from 2003 to 2013.
Monetary policy has reached its limits, he said. If you repeatedly bring down interest rates to try and persuade people to spend today rather than tomorrow, it works for a while. But they become increasingly resistant to being asked to spend their resources now rather than save for the future. And the longer domestic spending is in excess of potential output, the more you have to borrow from the rest of the world to finance it. Eventually people wake up to the fact that this is unsustainable and then you get a sharp adjustment downwards.
Wrong direction with more debt: Although King said raising rates now isnt necessarily a good idea (That would just lead to another downturn), he levied significant blame on governments borrow-and-spend policies and failure to enact fiscal reforms.
If we had too much spending and too much borrowing before the crisis and we have even more spending and borrowing now, then were moving further and further away from the point that weve got to get back to, he said. So monetary policy is not only meeting diminishing returns, but its making the ultimate adjustment even bigger. Its taking us in the wrong direction.
Echoing recent concerns from the Organisation for Economic Cooperation and Development, King fears that without effective governmental reforms, the risk is that we just muddle through with a prolonged period of very low growth. The longer that goes on, the more output we will have lost in the interim. And in the long run, it makes another crisis more likely because, if everyone is relying on monetary policy and it isnt the answer, we wont get back to a new equilibrium.
Sensible to own gold: Therefore, gold remains a key defensive asset to enhance wealth preservation, King says. Its still early days to conclude that around the world, governments have found the solution to maintaining price stability with a managed paper currency, he said. We made real progress in the 1990s and early 2000s and a lot of countries went down that road and followed us. But hyperinflation has clearly not disappeared the second biggest hyperinflation in history was in Zimbabwe in this century so I can understand why holding gold would seem to be a sensible part of a national portfolio. Because there is clearly a need to take some precautions against an unknowable future.
The run into gold by many emerging-market nations, particularly China, makes a lot of sense to King.
I can understand why they feel that some proportion of their portfolio needs to be in gold, he said. Who knows what the future holds, but China and other countries do not want to be in a situation whereall their international assets are in effect dependent on the US. Of course the US would not want to renege on its debts, but if some awful conflagration occurred, then all Chinas assets in the US might be annulled. So there are plenty of big concerns that make it extremely reasonable to have assets in your portfolio that are not dependent on the goodwill of other countries.
Royal Mint appeals to pensioners: And King, of course, isnt the only Brit who sees value in physical golds safe-haven properties, which include the lack of counter-party risk. The United Kingdoms Royal Mint thinks that the countys retirees might like to have exposure to the yellow metal for their own golden retirement parachutes.
Therefore, the mint is now offering gold bars for sale that can fund tax-efficient self-invested personal pension (SIPP) schemes, Business Insider reported. These bars will be stored in the Royal Mints vault, with prices fluctuating according to the live gold price.
The move follows the decision by the Financial Conduct Authority (FCA) in 2014 to make gold Bullion a standard asset, which means financial advisors are now allowed to advise clients to invest in gold.
(American investors planning for their retirements also have gold and silver as options. Blanchard and Company has a three-step method for clients to add precious metals to their individual retirement accounts, or IRAs. Visit the preceding link, or call our investment professionals at 1.800.880.4653 to learn more.)
If the Brexit proposal passes on June 23, look for more Brits, as well as other Europeans, to seek safety in the yellow metal. And with the European Central Bank continuing its negative-interest-rate and quantitative-easing policies (including now purchasing corporate bonds), gold will maintain its allure even if voters reject the Brexit agenda.