How negative Interest rates can be good for gold prices

How negative Interest rates can be good for gold prices


Welcome to illuminati silver, we tell you
the truth about silver Today is Thursday 7th April 2016 and we are
briefly looking at the impact of negative interest rates on the price of gold.
The expectations of interest rate hikes by the Federal Reserve was one of the greatest
factors weighing on gold prices in 2015. An increase in interest rates diminishes the
appeal of gold, which doesn’t pay any dividends or interest. So, a lower-than-expected interest
rate would be positive for gold prices. The Federal Reserve Chair, Janet Yellen, noted
on February 10th that the risks to economic outlook could delay the Central Bank’s plans
for raising short-term interest rates. Yellen added, “Financial conditions in the United
States have recently become less supportive of growth, with declines in broad measures
of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation
of the dollar.” Similar dovish comments in March and then
again yesterday further supports this view. So despite quite positive job figures, the
Federal Reserve is indicating that there are only likely to be two interest rate rises
this year as opposed to the originally planned four.
Our view was that one was almost definitely going to happen and that although two is possible,
we doubt it will actually come about. Interestingly Federal funds futures, which are used to hedge
interest rate risk, are also factoring in a maximum of one interest rate hike until
the end of 2016. The Federal Reserve has asked the banks to
prepare for the possibility of a negative interest rates policy (or NIRP). Currently,
it is being done as a stress testing scenario to see how the banking system could be affected
by it. This means people are charged on their deposits with banks, and banks are charged
for their deposits with the Central Bank. This dissuades idle cash balances and artificially
boosts demand. Many analysts see negative interest rates
could extend to bonds which could be beneficial for gold prices.
Even the World Gold Council highlights four reasons why negative interest rates will structurally
increase demand for gold as a portfolio asset: 1. Reduces the opportunity cost of holding
gold. 2. Limits the pool of assets some investors/managers
would invest in. 3. Erodes confidence in fiat currencies due
to the threat of currency wars and monetary intervention.
4. Further increases uncertainty and market volatility as central banks run out of effective
policy options to combat inflation/deflation and/or spur growth.
In addition, Gold typically rallies on expectations of increasing inflation. However, gold as
an asset class benefits when investors think that central bankers cannot contain the inflationary
or deflationary threats. Currently, market participants are highly sceptical that the
policymakers can actually boost inflation. Lower commodity prices, currency wars, and
a slowdown in industrial production in the major world economies are leading the global
economy into a state where deflationary pressures are rising.
In a deflationary environment, people lose faith in fiat currencies, which are not backed
by anything tangible other than government promises. Deflation also leads central banks
to take drastic measures to kick-start the economy, such as quantitative easing and cutting
interest rates. However, with most of the developed world at zero-bound already, central
bankers might go for negative interest rates, as mentioned earlier and further quantitative
easing. This could increase market uncertainty, which
usually sees investors rushing in to park their money in safe-haven assets such as US
Treasuries and gold. So does this mean that gold prices will inevitably
rise and soon? Not necessarily. Should global economic activity increase and world economies
pick up, then we shall undoubtedly see further stock market increases and a move away from
gold, though silver may actually benefit from that scenario. More likely, we suspect that
such improvements, if they do occur, will be slow and small.
The One aspect we believe is pretty well determined, and that is, even if we see higher US interest
rates, it does not change the outlook for very low and negative global interest rates
elsewhere. We hope you have found this video interesting
and informative and if so, please give it a thumb up and share it on twitter. Also kindly
visit our website at www.illuminatisilver.com and look at our Facebook page which is updated
daily at www.facebook.com/illuminatisilver Disclaimer: Illuminati Silver owners come from a background
of Banking, International Wealth Management and Economics. Having now retired from these
worlds we are not qualified to give investment advice. Therefore, this and other productions
must not be deemed to be giving such advice and merely represent the personal views of
its owners.

12 Comments

  1. It appears to matter not as to whether interest rates rise or fall for eventually the economy cannot handle either scenario IMO.

  2. You have highlighted the contemplated use of a NIRP in the US and the likely impact on the price of gold. I have read articles which recommend an allocation of 5% to 10% of one's total wealth being allocated to holding gold. If a NIRP "experiment" is indeed employed in the US (and perhaps in other western countries), I would think the general allocation percentage range just mentioned should be significantly higher. What is your view?

  3. The current and previous 3 Fed chairs had a live discussion that was on Bloomberg television when I got home from work. They talked the usual jibberish, but I kept wondering why they were doing the discussion at this time. My guess is that Yellen needs to bolster her image, as many feel she is not ready for prime time.

  4. Yes, thank you. I'm sure you would agree a NIRP environment would "rule out" many traditional investment categories as they would not suit the times or individual circumstances. I understand there is higher risk involved with gold investment, but a protracted NIRP environment may indeed reduce this "risk" to an acceptable level thereby allowing a higher investment portfolio allocation than would normally be the case.

  5. The Fed just announced a closed, unexpected meeting scheduled for Monday April 11. Rumor is they will be hiking rates. If they do, I will go on record and say that this will be one of the greatest Fed blunders in history. The economy is decelerating. State and city tax revenues have been in decline now for the past 6 months. If the economy was expanding, tax revenues would be going up. The city in which I live just announced the firing of over 100 police officers and firefighters. The Atlanta Fed GDP tracker for Q1 is now at 0.2% growth. I'm still saying that by Q4, the Fed will launch QE4 and/or NIRP.

  6. People with an already well balanced portfolio and who are sitting on some cash have a choice to make. This is because we now live in a world of zero/negative interest rates and endless money printing. Their money sitting at the bank not only pays nothing and may even cost them for the privilage but is at great risk of being bailed in/stolen. I just wonder how many even consider the gold/silver option. Surely there brokers will not bring it up as there is nothing in it for them. For those who wish to protect their wealth, they better hurry and learn all they can about the metals and how and what to buy and store in their possesion. I also believe in keeping some good old fashion cash around to avoid any systemic break down and non functioning ATMs. Don't attract attention to yourself by making overly high cash withdrawls, just a thousand or two each month, if the bank teller asks you can straight out tell her it is not her bussiness or lie. Lying, i think is better just to avoid a confrontation and triggering an investigation.  For people like me who know little about finance and are scared just because there are so many voices out there making so many different claims all we can do is take a defensive posture and just hold on to what we have right now. It is not a time to profit, it is a time to survive!!!

  7. Mister Silver do i have the feeling u changed ure mind about metals…I have the feeling since 1 2 months ure more positive to own the real gold and i have the feeling u start to change ure vieuw on gold-silver in fysical form vs the paper..

    And u know that the econemy cant recover with all this fresh money that created no intrest levels or negative…Things are going to end in ashes in a certain way there is no way out only by starting with a new currency system where debt creation isnt part off cause debt killed the world and capitalism by moving production to low wage countrys..

  8. Banks work on a reserve ratio,so if u have negative intrest rates many people draw there saving back and store it at home meaning less in the vaults to mulitply how would that be a benefit for the econemy?

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