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This week’s issue of ‘The Investor’ comes to you early, with the GBP the sole focus.

Market instability?

Up front, I have never really invested heavily in the GBP market. However, this is more due to a little (and odd) loyalty to my eCountry than anything else. One of the most profitable of the stable countries on the monetary markets, a profit of around 4% is quite usual.

An announcement early last week by the UK Chancellor of the Exchequer, Arthur Wellesley, meant that a long period of indirect government regulation of the GBP would come to an end for an indeterminate time. Shortly afterwards the GBP spiked quite dramatically to 0.037, and is currently settling between 0.027 and 0.028. Given the UK position that there is too much currency in circulation, and policies pursued to that end, this was a surprising development. If there is too much currency the pressure on the currency market should be downward, with plenty of people prepared to undercut, to realise quick profits, and with GMs holding substantial cash (non GOLD) holdings, little need to buy it. In such circumstances, markets tend to be slow, stable, and, if anything, have a tendency to devalue slightly. Thus I am drawn to 2 possible conclusions. First that people have withdrawn their cash off the market for a reason, leaving a temporary lack of GBP to drive the rate up, and second, dependant on the supply of GBP, the rate will at some point continue to fall again.

This last point is tied up with the supply of GBP, so in no way treat this as Gospel, especially with current trading offering in the region of 6%. It depends on the relative success of the Treasury plan. If GBP becomes less available, the demand for it will increase. However, demand for the GBP is not very high, nobody seeming to want it (until recently), so the market is artificial, to an extent only known to the Treasury by the amount of money they use to regulate it. Also, the implied promise of the Treasury is that, at some stage, they will intervene into the GBP market again. These are possible competing pressures. All investment should therefore be based on short term trading, in the knowledge that the market may at some point choose to reward you, or to take some profit away.

Although it may disappear at some stage, and a market in fluctuation is notoriously difficult to predict, profit is still there for a while, while the ‘free market’ gets a chance to decide the rate of the GBP for a while.

GBP Bonds

The sale date for Bonds offered by the UK Treasury has been set as 16th September. Interest rates, size of bonds and amount per person (one only), have been set, what has not been set is the price. This I believe will be a strong indicator as to how investors will pay for their bonds. A high GBP rate should encourage investors to buy in local currency, as it will be worth more, while a low GBP will obviously encourage payment in GOLD. With the GBP at a higher rate than any for the last few months, my view is the GBP purchase. Whichever way you choose to go, however, there is good safe profit to be made.