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The rise in the price of gold is a harbinger of a currency crisis

Рост цены золота – предвестник валютного кризиса

This year, the gold feels better than other asset classes. From the beginning, its value has jumped 16 percent amid investor interest in traditionally safe assets.

The gold increases, while the pound sterling is falling. Analysts compare it with the European currency crisis of the 1990s, when Britain in late 1992 refused to bind to the single European currency, so the investor George Soros earned $1 billion, betting against the pound and the Bank of England.

This year the precious metal rose by 16% against the Euro and 17.5% against the US dollar and 24% against sterling, from BNY Mellon. Of gold rose by 9% against the Japanese yen.

This week gold continued to rise after the Prime Minister of great Britain David Cameron has appointed the date for the referendum on the country’s membership in the European Union. Thereafter, the pound against the dollar fell to around seven-year lows.

“It seems reasonable to conclude that the rally in gold prices is at least partly related to concerns surrounding the referendum affecting the currency markets. It reminds me of the situation with gold during one of the most notable European currency crises in the early 1990s,” said chief strategist BNY Mellon’s Simon derrick.

In 1993, gold jumped after the UK withdrew from the European monetary system on the background of speculative attacks on the pound. In may of that year its value rose to the level of approximately $385 per ounce from the March lows at $326.

Analysts at ABN Amro believe that the latest fluctuations of quotations of gold is inherent rather risky than safe assets.

Gold prices received strong support, as investors must turn to long bonds in order to avoid developing negative interest rates as major Central banks likely to cut interest rates to negative values.

“Now the gold prices are reasonable, and, given that most currencies, and other assets are not attractive, this situation will remain for a long time. In addition, the low gold price makes it a relatively safe bet compared with other assets,” ABN Amro analyst Georgette boulay.

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