Gold Could Rocket If The UK Is Downgraded

Gold Could Rocket If The UK Is Downgraded

Investors in gold are likely to be the big winners if the UKs credit rating is downgraded.  But ahead of revealing why, here's a fabulous infographic illustrating why gold is such a great investment

gold

You can buy gold with cash or via your SIPP on SIPPclub by clicking on the gold button below.

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Since 2000, gold has outperformed the S&P 500 each year, 9 out of 12 times

History has shown gold to have several properties as an investment.  Gold helps diversify a portfolio and also acts as a hedge against inflation, currency devaluation, and volatility.

Many factors affect the price of gold such as speculation, geopolitical events, supply and demand, and macroeconomic factors.

Gold is the ultimate store of value.  It has the tendency to stay strong in the face of inflation, uncertainty, or currency devaluation.  As central banks continue to increase the money supply in today’s economic climate, investors continue to turn to gold as a safe haven for their investments.

The New Year has heralded new warnings

George Osborne admitted recently in his Autumn Speech that his austerity measures hadn't hit the mark. It's likely they'll remain in place for two years longer than planned for the UK to successfully control its debts. The spending cuts and slow economy would remain until 2018 rather than 2016.

The problem is this timeframe is based on everything going to plan. If tax revenues fall, unemployment rises and benefit claims increase, then the plans start to veer off course and our repayment takes longer.

The UKs coveted AAA rating is at risk

This warning itself is partly caused by the Treasury admitting the national debt will now take longer to control. And a downgrade would have severe implications to Osborne's plans and indeed to the investment market.

Standard & Poor's, Moody’s and Fitch, the world's three largest agencies, have all put the AAA rating on 'negative outlook' with a downgrade expected soon.  The major consequence would be to drive up the UKs borrowing costs. And that would mean it would take far longer to repay the debts. This would be passed onto businesses and households, further slowing any chances of recovery. The less transparent effect could be a loss of confidence and sentiment towards the UK, leading to less investment and slower growth.

While this is clearly bad news for those in the UK and those investors hoping markets would improve, it could provide a huge opportunity for gold investors. Firstly, as the world's safe haven asset, such a downgrade in itself would see the underlying gold price rise, as the UK is a major global trading partner. Faced with the downgrade, the investment world's natural reaction would be to seek a safe haven away from traditional currencies and gold provides this. It would also likely see central and commercial banks shift more money out of Sterling and into gold to protect themselves from depreciation.

When the US was downgraded in August 2011, the gold price rose to record levels.  The additional bonus for UK investors would be that a UK downgrade would likely see Sterling fall against the Dollar, meaning further gains for those who bought gold in Sterling. That's because the value of gold in the UK rises as Sterling falls against the Dollar.

Arguably, it's always the right time to buy gold

All in all, it makes sense for those in the UK looking to start the New Year with stability and certainty to buy gold if they don't already own any. 

You can buy gold with cash or via your SIPP on SIPPclub by clicking on the gold button below.

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