On 22 May the Prime Minister stood outside Downing Street and called a general election for 4 July. For the next month Britain will hear pledges on tax, spending and the cost of living. Whoever wins, one thing will not change. Governments come and go. The pound keeps losing its buying power. Gold carries no political risk at all.
A month of records and an election
Gold reached a new all-time high on 20 May. It eased back towards the end of the month but still sits close to its peak, up roughly 13% since the start of the year.
On the same day the election was called, figures showed UK inflation had fallen to 2.3% in April. That is close to the Bank of England's target. Yet Bank Rate remains at 5.25% after the Bank held again on 9 May. Prices are rising more slowly, but they are not falling. The ground lost since 2021 has not been recovered.
Seven prime ministers, one direction
Since 2000 Britain has had seven prime ministers from both main parties. Over the same period the pound has lost more than 40% of its buying power on the official consumer price measure. That loss did not depend on which party was in power. It happened under all of them.
Gold tells the other side of the story. Since the end of 2000 the price of an ounce of gold in pounds has risen roughly tenfold. Gold has not changed. The ounce is the same ounce. What has changed is the amount of paper money it takes to buy it.
This is the point many savers miss. A rising gold price is mostly a falling currency, seen from the other end. Savers who held only cash through those years kept the same number of pounds. Each of those pounds simply bought less.
The debt every government inherits
The Office for National Statistics reports that UK public sector net debt stood at 97.9% of GDP at the end of April. That is a level last seen in the early 1960s. Britain borrowed £20.5 billion in April alone.
The official forecasts do not show that debt falling quickly. In March the Office for Budget Responsibility forecast that debt, on the measure that excludes the Bank of England, would rise from 88.8% of GDP in 2023 to 2024 to a peak of 93.2% in 2027 to 2028. It also warned how fragile the sums are. If the interest rates paid on government debt were just 0.3 percentage points higher, that alone would wipe out about £9 billion of the room the Government has to meet its target for debt to fall.
On the wider headline measure, the OBR expected debt to rise from 97.6% of GDP in 2023 to 2024 to 98.8% this year. Only then is it forecast to ease, to 94.3% by 2028 to 2029. Whoever forms the next government will spend the whole of the coming Parliament with debt close to the size of the economy.
Every new government inherits this debt and adds to it. None has a painless way to repay it. History suggests the most common path is quiet: allow inflation to run a little above interest rates for long enough and the real value of the debt shrinks. The cost of that path falls on savers, whose cash shrinks with it.
That is not a forecast about any party. It is how heavily indebted governments have behaved for centuries.
When politics moves the money
Britain has seen more than once how quickly a political crisis can reach household savings. On 16 September 1992, the day that became known as Black Wednesday, the Bank of England raised interest rates from 10% to 12% in the morning. That afternoon it announced a further rise to 15%. At 7pm the Chancellor, Norman Lamont, announced that Britain would leave the European Exchange Rate Mechanism. The pound had been defended with two rate rises and then let go within a single day. The financier George Soros is reported to have made £1 billion betting against sterling.
Three decades later the pattern repeated in a different form. In September 2022 a single fiscal statement sent the pound to a record low against the dollar. On 28 September the Bank of England announced that it would buy long-dated government bonds "on whatever scale is necessary" to restore order. It warned that the turmoil posed a material risk to UK financial stability. The purchases ran until 14 October and the Treasury stood behind them in full. The Bank also delayed its own plans to sell gilts until 31 October. Its stated fear was that a broken bond market could tighten credit for households and businesses across the country.
In 1992 the trouble came from a promise to hold the pound inside a European currency system. In 2022 it came from a fiscal statement that the bond market did not trust. Neither crisis was caused by gold or solved by it. Both showed that the value of money in Britain can change sharply because of decisions taken in Westminster.
Gold carries no political risk
A pound in the bank depends on decisions made in Westminster and Threadneedle Street. A government bond depends on the government that issued it. Even the value of a pension can move with a single policy change.
In 2022 Britain saw how quickly that can happen. Within weeks of that fiscal statement a prime minister was gone. Gold, priced in pounds, rose as sterling fell.
Gold does not need a manifesto. It cannot be devalued by a vote or a budget. It is no one's liability. That is why central banks across the world, whatever their politics, have been adding to their gold at a record pace.
Legal tender status matters
Elections bring speculation about tax. Capital Gains Tax is often mentioned. The annual allowance has already been cut from £12,300 to £3,000 in two years.
UK legal tender gold coins such as the Britannia and the Sovereign sit in a different position. Because they are legal tender, gains on them are exempt from Capital Gains Tax for UK residents. That treatment has applied for decades under governments of every colour.
The rule rests on the law itself rather than on any one Budget. HMRC's Capital Gains Manual states that Sovereigns minted in 1837 and later and Britannia gold coins are currency. Like all sterling currency, they are exempt under section 21 of the Taxation of Chargeable Gains Act 1992. Gold coins that are not UK legal tender, such as the Krugerrand, do not share that treatment. HMRC treats them as chargeable assets, so a gain on them can be taxed like a gain on shares. The 1992 Act remains in force today, which is why the exemption has lasted through so many changes at the top.
Elections are a reminder that the rules around money are set by people who will not be in office for ever. Gold has outlasted every one of them.
Speak to a specialist
If you would like to talk it through, call a specialist on 0208 064 0076, Monday to Friday, 9am to 5pm, or book a call at a time that suits you.
Sources
- ONS, Public sector finances, UK: April 2024
- Bank of England, Inflation calculator
- Office for Budget Responsibility, Economic and fiscal outlook, March 2024
- Bank of England, Bank of England announces gilt market operation, 28 September 2022
- The Conversation, Why Black Wednesday still matters
- HMRC, Capital Gains Manual CG78305: currency
This article is for information only. The value of gold can go down as well as up.