Question about buying Gold in GBP vs USD, and what effect exchange rates have to buying gold in GBP

[Skyhawk747]

Hi guys, I am an utter newbie to all this gold stuff. 

I have 2 questions if anyone is kind enough to answer...

1) Is it worth buying gold in the next day or 2? I was thinking of 32 Britannia sovereigns as they carry no CGT and I want to hold them for a minimum of 8-10 years.

2) However, is it worth buying gold here in the UK with GBP when it's priced at USD and the GBP is at a horrible low to the USD of $1.24 to the GBP? The GBP always sat around an average of $1.59 USD and with the turmoil of the politicians here, if Labour get in on the next election, UK rejoins the EU and the pound recovers back to around $1.45 - $1.55 wont any gold bought in GBP plummet in price? by at least 25-30%?

Many thanks

[ChrisSilver]

Thank you for your question. I have moved your post to a new topic as it is better suited as a separate topic  

[Bratnia]

Gold (and silver) used to be Pounds/money. A Sovereign = One Pound legal tender value. Containing 0.234542 troy ounces of gold. In 1931 that ended and the two separated, enabling the state to print/spend whereas before it couldn't create more gold.  Recently the same amount of gold buys around £366, such has been the Pound devaluation (inflation). Less a case of gold having appreciated 6% annualised, more a case of Pound paper (now plastic) money having depreciated at 6% annualised.

So think more along the lines of Pounds, Dollars and Gold ... all being different currencies. Where the exchange rates between them vary constantly. 

Labour may very well get in at the next General Election, but I don't think the EU would be quick to take the UK back into the EU, nor under the same prior terms. I would also expect that the Pound would be more inclined to fall rather than increase if/when Labour rise to government. Fundamentally that's the game, if you think a currency such as Pounds, Dollars or Gold is going to strengthen (or weaken) then you exchange into whichever you opine has the better upside potential, factoring in that in the case of Pounds or Dollars you might also deposit those for interest or invest them in stocks/shares. Or rather than making bets, hold some of each, perhaps in around equal measure. US$ maybe invested in US stocks, Pounds perhaps deposited in savings accounts, Gold. On that basis you might buy all at the same time, you've in effect averaged in. If you just buy one then you're more making a bet. My opinion is worth nada, however in my opinion I wouldn't lump into gold in one go at present levels, instead I'd buy perhaps one coin/month (average in). Or instead of spending £12,000 just on gold in one go, invest £4000 in gold Sovereigns, £4000 in VUAG (US stock accumulation fund) and drop £4000 into a savings account, some one year fixed rate deposits/accounts are paying around 3.75% as of recent. That way if the Pound or Dollar or Gold rise or fall you will neither have been fully wrong nor right. But where middle road average tends to broadly work out OK.

PV example

 

[Bratnia]

On 06/06/2023 at 12:44, Skyhawk747 said:

The GBP always sat around an average of $1.59 USD

From 1791 up to 1931 one GBP mostly bought 4.50 USD. Gold was money. Britannia ruled the waves. If the state borrowed (peopled deposited their One Pound gold Sovereigns) it paid a real rate in return (interest was pretty much real, as inflation was broadly 0%). For smaller amounts silver was coinage, a silver shilling (or dollar). For even smaller amounts and copper pennies. Worth their weight. More recently and copper pennies are no longer copper as copper prices spiked so they swapped over to using inexpensive metals in coins, 1p and 2p coins nowadays are just copper plated steel.

But then the US stepped up to take over from the collapsed British Empire, where the cost of WW1 pretty much had bankrupted the UK. And they (US) got international agreement that the USD should be used instead of gold for international trade, and that they'd peg the USD to gold. But in reality ended up printing/spending USD's (such as to buy a massive military might) that in effect exported US inflation onto others. As part of that in 1934 the US nationalised all of its gold, compulsory purchased gold held within the US, and locked it up in Fort Knox.

Since 1931 the tendency has generally been for the USD to decline relative to gold, and for the GBP to decline relative to the USD. As both countries printed/spent (dollars/pounds). Each new note (dollar bill) printed/spent, devalues all other notes in circulation, inducing inflation. But that's not a consistent trend, at times the GBP might rise relative to USD (or gold), according to ongoing economic/geopolitical circumstances.

People save/invest surplus money today in the hope/expectation of that money buying much the same amount of goods/services at a later date. One way to better ensure that is to diversify, hold a mixture of currencies (GBP, USD, gold) and assets (bonds, stocks, commodity). Likely one will falter, another will do well, collectively averages out OK. 

If/when post 1931 trend continues, in another x years time the GBP may very well be at parity with the USD, or even continue on further down, perhaps having to spend GBP 1.20 to buy a single USD.