The UK’s second biggest export market in August this year was Switzerland at £2.3 billion (the biggest was the US, £3.2 billion), according to the Barometer column in The Spectator this week. So what on earth are we selling so much of to the Swiss?
We are sending coal to Newcastle, or in this case gold to Zurich. The explanation for this unlikely turn of events lies with Exchange Traded Funds (ETFs). They are supposedly a cheap way to track the price of a stock market index or, in this case, gold. Without getting too technical, there are two ways they can do this. They can buy gold futures and keep rolling the position as it becomes deliverable. This does not reflect the price of gold if the roll costs money, i.e. the second month is more expensive than the spot month.
The other way an ETF can more accurately reflect the gold price is by buying actual gold and that is what many funds do. About five years ago there was an influx of money as investors sought what they perceived to be a safe haven. Gold prices have steadily fallen since then and now these investors are losing patience and selling. It’s a buy high, sell low, story. This selling means ETFs have to sell gold they have been holding to back their funds.
Our August exports to Switzerland are up 290% from August 2014 as the gold is moved from vaults in the UK back to Zurich. However, it doesn’t stay there long. Much of it continues east to China, India and Singapore. I wonder nobody has thought to intercept it as in The Italian Job or Goldfinger?