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Gold Ticks Higher as London Housing Market Crash Looms?

Commodities / Gold and Silver 2015 May 19, 2015 - 03:32 PM GMT

By: GoldCore

Commodities

- London property falls most in nine months in May
- Falls possibly due to pre-election fear of Labour housing policy
- Surge in sterling dampens demand
- Tory victory has led to surge of new sales
- London market still overheated
- Investors look for stores of value


High end London property prices crashed 6.3% in the last month while average prices in the city fell 2.3% – the largest fall in nine months, according to Bloomberg. Prices across the UK slipped 0.1% in the same period.

Gold has been moving steadily higher in the last week as the surging pound began to dip.

Media reports suggest that many buyers postponed closing deals in the run-up to the election due to fears over the implications of a labour victory on the property market.

Ed Miliband had indicated that labour would put a “mansion tax” on properties valued at over £2 million, which may have deterred investors from the market. International investors who, according to The Telegraph make up an entire half of all luxury property purchases in London, also feared “an attack on their non-domiciled status.”

Apparently, the Conservative victory has led to a surge in pent-up buying in the week following the election.

It is also suggested that the surging pound continues to dampen demand for London luxury property. The post-election spike has put a premium of roughly £33,000 per £1 million on properties bought by Americans, Chinese, Russians and investors from the Gulf states.

Eurozone buyers pay roughly €130,000 more today to transfer £1 million to the UK.

The Telegraph reports that Russian property investment in London has largely declined since the rouble crisis began.

It adds that ultra-rich Russians, buying properties valued over £10 million, were still a strong presence in the high end of the London property market.

We believe the London property market in particular to be in bubble territory. The upward movement has been led by the high-end market.

*The fact that high-end property could plummet by 6.3% in a single month – on rumours of a policy change – reflects a high degree of fear in the market.

*We do not believe that the pre-election fear over a Miliband government and a surging pound are the only factors affecting the London property market.

*The woes of the Russian rouble have curbed Russian demand. Lower oil prices have curbed demand from Gulf states. China has cracked down on money being funnelled through tax havens into property in London.

These factors have removed a large chunk of demand and now it would appear prices in the high-end market – which were already bloated – are teetering. Fears over Labour policy may have been a catalyst for the move but we do not believe it to be the main cause.

Bloomberg report that “In London’s most expensive districts, prices plunged 6.3 percent this month to 1.44 million pounds, according to the report. That’s a 7.4 percent drop from a year ago.”

Average house prices in London dwarf those of the rest of the country. London prices average £581,074 – more than 15 times the median salary – whereas the national average is £285,891.

The media have chosen to focus on a reported surge in demand following the reelection of the Tories. The fact that high end prices fell so substantially has been explained away.

This kind of risk-averse exuberance often augurs a crash in a market. Reports gush at how investment from the U.S., India, Brazil and Singapore are expected this year.

This may be so but it has yet to materialise and the absence of a dissenting point of view suggests that caution has been thrown to the wind.

The surge in the price of high-end possessions – such as property in London and in other major cities as well as in high-end art – reflects a desire for stores of value outside of the markets.

High net worth individuals, families and institutions are seeking a store of value for the almost limitless amounts of cash created out of thin air, particularly since the crisis of 2008.

The inflation which has been seen in these markets may spread to other asset classes as investors seek stores of value which have not yet moved into bubble territory.

Among those asset classes, an obvious candidate is gold – history’s most reliable store of value. Investors would be wise to have an allocation of gold at the heart of their portfolio.

When currencies fail gold has always remained as a store of value with which to begin building wealth again.

GoldCore Insight: Is London’s Property Bubble Set to Burst?

Click to read: Gold is a Safe Haven Asset

MARKET UPDATE

Today’s AM LBMA Gold Price was USD 1,219.65, EUR 1,090.24 and GBP 785.31 per ounce.
Yesterday’s AM LBMA Gold Price was USD 1,228.15, EUR 1,079.41 and GBP 784.12 per ounce.

Gold climbed $0.40 or 0.03 percent to $1,225.30 an ounce on yesterday, and silver rose $0.15 or 0.86 percent to $17.68 an ounce.

Gold pulled back after a five day rally as traders cashed in gains and the dollar grew one percent stronger against other currencies.

Gold in Singapore near the end of trading slid 0.4 percent to $1,220.93 an ounce.

U.S. Federal Reserve President of Chicago, Charles Evans, said yesterday that the central bank could look at a rate hike in June if the economy was strong enough.

Gold’s direction will be guided from tomorrow’s release of the U.S. FOMC minutes from its last meeting.

Gold ETFs have seen outflows and the SPDR Gold Trust has seen its holdings dip to a four-month low of 718.24 tonnes.

Greece is close to a cash-for-reforms deal with its European Union partners and the IMF that would help it meet debt repayments next month, the country’s finance minister said yesterday. However, the debt-ridden country is not out of the woods yet and there is still an underlying chance of an exit from the eurozone.

In late European trading gold is down 0.38 percent at $1,219.50 an ounce. Silver is off 1.62 percent at $17.41 an ounce and platinum is also down in U.S. dollars 0.59 percent at $1,165.20 an ounce.

This update can be found on the GoldCore blog here.

Mark O'Byrne

Director

IRL
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FITZWILLIAM SQUARE
DUBLIN 2

E info@goldcore.com

UK
NO. 1 CORNHILL
LONDON 2
EC3V 3ND

IRL +353 (0)1 632 5010
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