What does the recent surge in the British Pound (GBP) mean for investors? What do you need to do to stay invested in the currency markets? Can the recent rise in GBP come to an end?
The answer to these questions is yes, the current rally in the GBP is in fact a bullish trend and continues as the currency market works through what may turn out to be a very strong period of times. How so? Well, for starters, the US Dollar has lost quite a bit of its strength in recent months, which is a factor that leads to weakening currencies around the world.
With a weak US Dollar, a weak UK Dollar is a very popular commodity. The weakest trade is probably gold, which is most often looked at as a hedge against depreciation in the US Dollar. But, as is the case with every market, with gold and the USD, the strength of the US Dollar also makes it weak, as well.
A weaker US Dollar means a weaker GBP, which implies that investors need to get into the currency markets in order to make the most of the current situation. We have seen recent news reports from the markets that indicate both investors and traders that this trend is likely to continue. That means the current rally in the GBP is not going to end any time soon.
There are two factors working against buyers, though. One is the price movement in gold, and the other is the price movement in gold and silver. It would seem then that buyers are going to have to diversify away from silver and gold, if they want to remain invested.
If they look only at gold and silver, the rest of the market is likely to be severely impacted. In fact, in some cases, the move into the markets will be slow and a bit static. And it will be up to the markets to pick up the pieces as a whole.
But, as long as those who sell the gold and silver are doing so in quantity, price movements will remain weak. That means buyers need to be actively buying, in order to pick up the slack. Buying, of course, leads to selling, which means the market is likely to weaken and there will be some selling pressures.
Will this trend continue for the rest of the GBP? Perhaps. However, the strength of the GBP on the markets remains a factor in its strength.
Gold and silver prices have strengthened slightly after the announcement by the Bank of England to begin quantitative easing. This has led to a big push up for silver, especially, as industrial demand for new machinery is likely to increase. However, that is not likely to have a significant effect on the current GBP rally, which remains to be a British currency rally.
The silver spot price did bounce back slightly in late August, but then fell again and this trend has continued. It seems that the real interest in silver at the moment is to be found in industrial applications. That said, if the markets start to weaken further, we may see silver moving lower.
As we mentioned in our recent report, the strength of the British Pound is not likely to be the only area of weakness in the gold and silver markets. We also noted that the strength of the US Dollar will likely continue to increase and that will affect industrial applications, as well. Investors and traders who are looking to remain involved in the metals markets are going to have to be doing that in tandem with a weak GBP.
The British Pound’s recent rally is in fact a bearish market. But, as we also noted, there is no reason to panic yet, and even if investors buy silver and gold in volume, the economy is unlikely to be strongly affected. Only a weak Sterling and a strong Dollar will have a major impact on the current trends, but this is yet to happen.