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Gold demand up 400% this week – dwarfing the Brexit rush

Paloma Kubiak
Written By:
Paloma Kubiak

The demand for physical gold has soared 412% in the past week – the highest ever seen by an investment firm – and higher than orders received during the Brexit referendum and onset of Covid.

Worried Brits are seeking the relative safe-haven benefits of the precious metal amid the market turmoil fuelled by last week’s mini Budget packed with stealth tax cuts.

It led to a currency crash, property market fears and stock market volatility while the Bank of England was forced to step in to stabilise the economy with a bond-buying programme as pensions were on the brink of a Northern Rock-style run.

Further, the Chancellor’s multi-billion pound tax cuts – to be financed on debt – also led the International Monetary Fund (IMF) to wade in and rebuke the measures which will “likely increase inequality” as critics suggested the wealthier would benefit more than lower-income households.

During the rollercoaster week, The Pure Gold Company has seen demand for physical gold coins and bars rise 412% compared to its weekly overage over the last year.

It said this is the highest level it has seen and is even higher than during the Brexit referendum and onset of Covid which spooked investors.

Meanwhile online gold marketplace BullionVault also said it has seen the largest inflow of new UK users since the March peak off the back of the Ukraine crisis. It said the number of new investors funding their account ready to buy for the first time jumped 122% above the previous 52-week average since last Friday.

According to Adrian Ash, director of research at BullionVault, gold bullion touched record highs this week. The gold price in UK pounds jumped more than 4% on Monday to £1,580 per ounce as sterling tanked before fixing at £1,547 on London’s official benchmark price, “a level it has topped only five days before, all at the height of the Covid crisis in 2020”.

He added: “Naturally, this week’s high GBP gold prices have met some profit-taking among more active UK traders. Net of UK customer demand, BullionVault’s UK user holdings have shrunk by 0.5% since Kwarteng’s announcement.”

‘Security in a very uncertain world’

According to The Pure Gold Company, 21% of enquiries over the past seven days have come from people who plan to use the proceeds of property sales to fund further investments in gold and silver.

CEO, Josh Saul, said: “They’re looking to sell in the next few months to avoid interest rates of 5 or 6% next year – which many have said they categorically would not be able to afford.”

Saul added: “The general sentiment is bleak. Our clients are worried about not being able to keep up with the rising cost of their mortgage (as interest rates increase) in addition to energy and food bills.

“The collapse of the pound is weighing on our clients who have businesses that rely on imports such as restaurants, retailers, green grocers, which are getting more expensive.”

With forecasts from Goldman Sachs suggesting inflation could top 22% next year, Saul said physical gold is a natural hedge against the rising cost of goods as it tends to increase (along with other goods or services).

“But it also serves to provide stability as a safe-haven asset when markets are uncertain, unpredictable and volatile, as they are now. Furthermore, as the pound falls it takes more sterling to buy the same ounce, so owners of gold will be able to maintain the purchasing power of their wealth,” he explains.

However, Saul warned that the availability of gold coins is extremely low. He said the death of the Queen sparked a surge in demand for coins, while it may also affect the striking of new ones as the Royal Mint prepares to replace the Queen’s effigy with one of King Charles III.

“The high demand / low supply environment for physical gold against a backdrop of a weakening currency, high inflation and uncertainty within all markets provides strong pressure for the yellow metal’s growth.

“That said, our clients are not purchasing physical gold to purely make money. It’s more about providing a hedge against inflationary pressures and security in a very uncertain world,” Saul added.

Ash echoed this point: “As a barometer of financial stress, gold says the UK faces a crisis as severe as both the worst of Covid’s first wave and the shock of Russia invading Ukraine.”