A new gold rush

This is an audio transcript of the FT News Briefing podcast episode: ‘A new gold rush’

Marc Filippino
Good morning from the Financial Times. Today is Wednesday, May 24th. And this is your FT News Briefing.

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The UK is struggling to hang on to a high profile solar power investment. Plus, gold is riding high. And it’s not just market investors behind the recent demand.

Harry Dempsey
Russia has been quietly, but also, you know, quite publicly, being building its gold reserve. And gold can operate outside of the western financial system.

Marc Filippino
But first, Europe’s industrial powerhouse is losing ground in China. I’m Marc Filippino, and here’s the news you need to start your day.

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German exports to China dropped by double digits in the first four months of the year — 11 per cent, to be precise. And that’s raising alarm bells in Berlin. Economists say Germany faces unique challenges. Its carmakers are losing market share in China, and chemical producers are reeling from high power prices. Germany may also be suffering because of trade tensions between the US and China. Germany seems to be a bit of an outlier, though. Most other European countries have had higher shipments to China this year as China’s economy rebounds from pandemic lockdowns.

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The UK has been struggling to keep British companies investing in the UK. Now a high-profile solar power developer called Oxford PV says it’s more likely to set up a new factory overseas and list on either the New York or Hong Kong stock market. Here’s the FT’s Alice Hancock.

Alice Hancock
The Oxford PV said the UK was the least attractive country simply because it lacked the incentives for solar companies to build their factories there. And when you compare it particularly to the US, which has put together this huge package of tax credits and subsidies for renewable technology developers, the UK just pales by comparison. And he said, similarly with the EU, the EU is willing to put money on the table and the UK was nowhere to be seen.

Marc Filippino
Alice, how big of a deal would it be if Oxford PV went overseas to build this factory and to raise more money?

Alice Hancock
Oxford PV is not some huge billion dollar company. It’s still not yet made a profit, although it hopes these solar cells will be its way for making that profit. But it was spun out from the University of Oxford in 2010, so it should be one of those innovation champions. The British government wants to keep, you know, it should be a company that it’s really putting its money into. So it’s more symbolic in many ways of a sort of wider malaise in the UK that where there’s the lack of industrial strategy for developing solar power and a sense from the industry that the government just isn’t interested. And in the long term, that will play out in a global environment where there’s huge, huge competition for these industries.

Marc Filippino
Is the UK gonna do anything about this?

Alice Hancock
The UK government has come under some pretty heavy criticism from . . . even from former ministers for lacking an industrial strategy in the way that the EU and the US have put forward. China has sort of jumped the whole world by throwing huge subsidies into its clean tech industries for many years now, and the western regions have now woken up to this. But the UK hasn’t come forward with any of this kind of flagship legislation, so we wait to see whether they will respond.

Marc Filippino
Alice Hancock is an EU correspondent for the FT.

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The price of gold is nearing an all-time high. Markets have become more volatile in recent months and investors are turning to the commodity long seen as a safe haven asset. Geopolitical tensions are adding to gold’s appeal, too. Here to explain is the FT’s Harry Dempsey. He’s our commodities correspondent. Hi, Harry.

Harry Dempsey
Hey there.

Marc Filippino
So, Harry, what’s going on here?

Harry Dempsey
So gold is known as a store of value. I mean, it’s been a store of wealth for about 5000 years, and it often moves in reverse of the way that a lot of other assets move. And in terms of, you know, what’s been going on underneath the surface, there have been massive geopolitical tensions, particularly after Russia invaded Ukraine, because after that happened, the west decided to sanction Russia’s foreign currency reserves. And those are mainly denominated in US dollars, sterling and euro. But Russia has been quietly but also, you know, quite publicly been building its gold reserves. And gold, if you are, you know, a government, it can operate outside of the western financial system but move, you know, between them. So Russia could keep funding its military even if the worse came to the worst.

Marc Filippino
And it’s not just Russia. Other emerging markets are also buying gold, right?

Harry Dempsey
That has been a massive factor for the gold price rally. Gold prices have rallied very sharply since November. The institutional investors had been largely absent from that rally and a lot of people in the market ascribed it to the central bank buying of gold, which has been driven by that fear that the US can weaponise the dollar in its sanctions, which it has against Russia. And so a lot of central bank reserve managers around the world have seen what’s happened and they’re thinking, wow, we need to reduce our dependence on the US dollar and diversify our reverse holdings. And gold is the perfect thing to do that because you look around and the euro as another fiat currency holds the same risks. The renminbi has capital account controls, meaning you can’t freely move your money in and out of China. And therefore gold has appeared to many as the best hedge against the geopolitical risks.

Marc Filippino
So there are these geopolitical reasons why some investors and central banks are piling into gold. But institutional investors, like big asset managers and fund managers, they were not part of this gold rush, at least initially. Why was that?

Harry Dempsey
Well, institutional investors will pay a very close attention to what’s happening with interest rates. And because interest rates have been rising so quickly, that actually dims the attraction of gold, because then bonds look more attractive for an institutional investor because you can get a yield back on them. But what we’ve seen in the last couple of months with the US banking turmoil is a lot more fear among sort of institutional investors. And they had largely been absent from the rally in gold prices, but they’ve really joined in. And so the US banking turmoil is sort of just layering on another factor that is driving prices of gold higher.

Marc Filippino
Harry Dempsey is the FT’s commodities correspondent. Thanks, Harry.

Harry Dempsey
Thanks very much.

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Marc Filippino
Before we go. Apple doesn’t normally disclose who its suppliers are, but yesterday the iPhone maker made a splashy announcement about a multibillion dollar deal with Broadcom. The American chip manufacturer will provide Apple with 5G components that are made — and this is the critical part — in the US. Apple has been under fire for relying too much on Chinese manufacturers, especially now that US-China tensions are ratcheting higher. Apple said the partnership with Broadcom is part of an existing commitment to spend hundreds of billions of dollars with US suppliers and manufacturers.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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