Am I chastened by the gold crash? Yes. Have I changed my views? No.

Gold bounces back from "flash crash".

A few weeks ago I wrote in this blog words to the effect that I was surprised that gold had not reacted more positively to the Bank of Japan’s massive programme of Quantitative easing. As can be the case, failure on the part of the markets to react in the expected fashion to a piece of news, such as the BOJ’s QE, was THE most valuable of market indicators, giving the clearest possible indication of market positioning, and hence we saw gold’s "flash crash" on 15th April.

Am I chastened? Yes. Have I changed my medium-term view that gold is a must-have holding for any portfolio? No.

Since that day, when gold futures hit a low of $1361.10 per Troy ounce, gold has bounced back to $1470 as I write - a rise of 8 per cent and a pretty good "dead-cat" bounce.

Among the many theories propounded to explain the "flash crash" was that which suggested that investors took fright as, such was the size of the BOJ’s money-printing operation, the US Federal Reserve may feel the pressure had been taken off to perpetuate its own QE programme. Any such fears have subsequently been put to rest , first by a concerted barrage of dovish comment from the Federal Reserve’s ruling elite, and then by anaemic  1st quarter US GDP figures, which went to underline the need for continued monetary accommodation in the US.

It seems likely that the BOJ’s QE may have inspired locals to become bullish on the prospects for domestic investments, such as equities, leading them to liquidate holdings in other assets, such as gold, to bring money home.

Now the dust has settled, investors are once again focussing on the almost ubiquitous use of quantitative easing to combat economic stagnation and also the stealthy way in which central banks’ mandates have quietly been tweaked to focus less on inflation and more on employment.

I believe we will look back on the gold "flash crash" of April 15th 2013 and see it in the same light as the US stock market "flash crash" of May 6th 2010, which may well have shared some of the same causes, and which in retrospect represented a great buying opportunity.

Chairman of  Saxo Capital Markets Board

An Honours Graduate from Oxford University, Nick Beecroft has over 30 years of international trading experience within the financial industry, including senior Global Markets roles at Standard Chartered Bank, Deutsche Bank and Citibank. Nick was a member of the Bank of England's Foreign Exchange Joint Standing Committee.

More of his work can be found here.

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The tale of Battersea power station shows how affordable housing is lost

Initially, the developers promised 636 affordable homes. Now, they have reduced the number to 386. 

It’s the most predictable trick in the big book of property development. A developer signs an agreement with a local council promising to provide a barely acceptable level of barely affordable housing, then slashes these commitments at the first, second and third signs of trouble. It’s happened all over the country, from Hastings to Cumbria. But it happens most often in London, and most recently of all at Battersea power station, the Thames landmark and long-time London ruin which I wrote about in my 2016 book, Up In Smoke: The Failed Dreams of Battersea Power Station. For decades, the power station was one of London’s most popular buildings but now it represents some of the most depressing aspects of the capital’s attempts at regeneration. Almost in shame, the building itself has started to disappear from view behind a curtain of ugly gold-and-glass apartments aimed squarely at the international rich. The Battersea power station development is costing around £9bn. There will be around 4,200 flats, an office for Apple and a new Tube station. But only 386 of the new flats will be considered affordable

What makes the Battersea power station development worse is the developer’s argument for why there are so few affordable homes, which runs something like this. The bottom is falling out of the luxury homes market because too many are being built, which means developers can no longer afford to build the sort of homes that people actually want. It’s yet another sign of the failure of the housing market to provide what is most needed. But it also highlights the delusion of politicians who still seem to believe that property developers are going to provide the answers to one of the most pressing problems in politics.

A Malaysian consortium acquired the power station in 2012 and initially promised to build 517 affordable units, which then rose to 636. This was pretty meagre, but with four developers having already failed to develop the site, it was enough to satisfy Wandsworth council. By the time I wrote Up In Smoke, this had been reduced back to 565 units – around 15 per cent of the total number of new flats. Now the developers want to build only 386 affordable homes – around 9 per cent of the final residential offering, which includes expensive flats bought by the likes of Sting and Bear Grylls. 

The developers say this is because of escalating costs and the technical challenges of restoring the power station – but it’s also the case that the entire Nine Elms area between Battersea and Vauxhall is experiencing a glut of similar property, which is driving down prices. They want to focus instead on paying for the new Northern Line extension that joins the power station to Kennington. The slashing of affordable housing can be done without need for a new planning application or public consultation by using a “deed of variation”. It also means Mayor Sadiq Khan can’t do much more than write to Wandsworth urging the council to reject the new scheme. There’s little chance of that. Conservative Wandsworth has been committed to a developer-led solution to the power station for three decades and in that time has perfected the art of rolling over, despite several excruciating, and occasionally hilarious, disappointments.

The Battersea power station situation also highlights the sophistry developers will use to excuse any decision. When I interviewed Rob Tincknell, the developer’s chief executive, in 2014, he boasted it was the developer’s commitment to paying for the Northern Line extension (NLE) that was allowing the already limited amount of affordable housing to be built in the first place. Without the NLE, he insisted, they would never be able to build this number of affordable units. “The important point to note is that the NLE project allows the development density in the district of Nine Elms to nearly double,” he said. “Therefore, without the NLE the density at Battersea would be about half and even if there was a higher level of affordable, say 30 per cent, it would be a percentage of a lower figure and therefore the city wouldn’t get any more affordable than they do now.”

Now the argument is reversed. Because the developer has to pay for the transport infrastructure, they can’t afford to build as much affordable housing. Smart hey?

It’s not entirely hopeless. Wandsworth may yet reject the plan, while the developers say they hope to restore the missing 250 units at the end of the build.

But I wouldn’t hold your breath.

This is a version of a blog post which originally appeared here.

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