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Gold In A Negative Interest Rate World
Submitted by John Rubino via Dollar Collapse blog,
Global capital is looking for a place to hide. But after decades of enthusiastic currency creation and financial engineering, there’s way too much of it for any one country to accommodate. This mismatch between money knocking at the door and available space is leading the handful of remaining safe havens to put up “no vacancy” signs in order to avoid being swamped. Among the things they’re trying is negative interest rates. That is, if you want to deposit money in a Swiss or Danish bank or lend money to the Japanese or German governments you now have to pay them for the privilege.
This sounds a little crazy, and from a historical perspective it is indeed highly unusual. But it’s exactly what you’d expect in a world of ever-increasing debt and ever-more-exotic financial speculation: Too much bad paper gets created which eventually blows up, causes instability and leads worried investors to value return of capital over return on capital. They all pile into whatever seems most likely to still exist a decade hence, forcing (or enabling) the managers of those assets to charge rather than pay interest.
Here’s a sampling of recent stories on the subject:
Less Than Zero: When Interest Rates Go Negative
In Denmark, Depositors to Pay Interest to Bank
Negative interest rates are hammering Germany’s savings banks
Riksbank Preview: Next in Line for Negative Interest Rates?
Swiss Impose Negative Rate Echoing 1970s Amid Russia Crisis
Get Ready For Negative Interest Rates In The US
Now, there are lots of interesting sub-topics to explore in a world of negative interest rates. But let’s start with the role of gold. Traditionally the ultimate safe haven, it is the one form of money that can’t be messed with and therefore the place to be when the messing gets out of hand.
Lately, for instance, it has spiked in countries with emerging currency crises. In Russia, Argentina, Greece and in fact the entire eurozone, the local-currency price of gold has risen faster even than the exchange rate of safe haven currencies like the US dollar and Swiss franc. And with interest rates going negative in much of the world, a person with capital to allocate confronts a new and very interesting risk/return calculus. Consider:
On a cash flow basis, gold sitting in a vault actually costs money in the form of storage fees. In normal times — back when government bonds and bank deposits yielded, say, 6% — the spread in favor of the bond and against gold was pretty compelling. But what happens when interest rates go negative, so that the cash cost of owing gold and government bonds is pretty much the same at around 1% a year? Now our hypothetical capital allocator has to ask some new questions. Among them: Has a fiat currency ever had a sustained period of rising value? That is, has there ever been deflation for more than just a short while in a system where a central bank could create unlimited amounts of currency? The answer is no, for an obvious reason: Deflation is bad for sitting politicians because it makes both government and business debts harder to manage and therefore elections harder to win.
In such circumstances money printing is pain-free. The sound-money advocates who normally criticize debt monetization are silenced by falling prices. Inflationists, meanwhile, love easy money and can always be counted on to cheer low interest rates and currency devaluation. So when fiat currency deflation becomes a possibility, it is always and everywhere met with a tidal wave of newly-created money, which eventually converts deflation into inflation.
This has been happening on a rolling basis around the world. When one country or currency bloc slows down its central bank opens the monetary spigot, interest rates plunge and the currency falls against its peers.
So here we are, with gold and government bonds costing about the same to own, but governments actively trying to lower the value of their bonds and bank accounts while gold is rising wherever trouble erupts.
The logical conclusion is that if gold and cash both cost the same to own, then maybe gold — which has held its value over millennia while every previous fiat currency has evaporated — is the better bet.
In Switzerland, this is apparently already happening:
Swiss Bank Says Investors Favor Gold Amid Charges on Cash
(Bloomberg) — Investors are buying more gold as an alternative to hold Swiss franc cash deposits, according Vontobel Holding AG, a Swiss bank and wealth manager.
“We keep noticing that gold is coming back into favor with investors,” Vontobel Chief Executive Officer Zeno Staub, 45, told reporters Wednesday after the Zurich-based company announced full-year earnings.
Concerns that Greece may abandon the euro and Ukraine may be headed for a wider conflict have spurred demand for haven assets. Gold has climbed 4.2 percent this year, even as the dollar strengthened on prospects of higher U.S. interest rates. Investors’ holdings in gold-backed funds are near the highest since October.
Vontobel boosted the proportion of gold in discretionary managed investments by 2 percent after the Swiss National Bank increased charges on banks that use it as a custodian for franc deposits, Staub said. The central bank introduced a 0.75 percent negative interest rate on some deposits as of Jan. 22.
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From your lips to god's ears
OT but good for a laugh:
Joe Biden Gives A Shout Out To “An Old Butt Buddy”Also:
It’s Too Cold To Protest Global Warming At YaleLet them play their Madoff (not Ponzi) scheme out. Just remember who it was who did this to us after the inevitable crash. The vengeance will indeed be sweet when justice is served.
If you think the likes of Goldman or JPM will be punished, think again. Bambi won't do it, no GOP leader will do it. The FED is told what to do, how to think, and where to sprinkle dust as Goldman dictates.
It's a shame most Americans cannot afford gold. At least us peasants can still afford silver. After all, "Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants, but debt is the money of slaves." Negative interest rates are pretty much the same as debt. You would be a fool to accept those charges. Jump up a few classes! Pay off your loans and buy silver! You will NOT be sorry once these fiat currencies vanish.
A good way to get someone started with silver are these candles with silver coin prizes: https://www.etsy.com/shop/ScentSavers?ref=hdr_shop_menu
My hat is off to those that are already stacking silver and are diversifying into gold and other tangible wealth storing options like real estate. But we need to help out our loved ones and show them there is another way than this continual debt!
The best reason to buy phys... It gives me the chance to give the FRB the bird. I smile every time.
Feels good. Def no buyers remorse when I buy mine either!
Perhaps you weren't buying in 2011?
gold is an inflation hedge, right? so, wouldnt everyone here think gold is going to drop as deflation continues to kick the central printers in the nuts?
If deflation were permitted to exist long term, yes. It won't be, and never has been under a fiat regime. Therefore deflation is simply a milepost indicating inflation (or even hyperinflation) is coming, so gold performs.
The other thing is that gold has dropped with the USD strengthening and due to intervention. We're at $1250 from $1800 a couple years ago. And finally, every day of an inflationary environment where the gold price was manipulated to be steady or down is effectively a drop. So basically there's so much decline baked into gold now that the deflationary risk to it is minimal, and so much demand for it at the CB level it's difficult to concieve of it falling so much as to be a big risk.
It is about perception and market share , not notional values in FIAT.
If just the market cap for Apple ran to gold, that money alone would buy all the Gold produced on Earth over the next 10 years. That is the "money" behind just 1 company in 1 market in 1 country.
Silver, is an even smaller market by today's notional value.
IMHO the bottom line is that the upside potential far outweighs the downside.
The coming shitstorm could be so bad that there are only losers and NO winners.
There are always winners, you just may not survive to see them. After WWII, in the 1950s, the threat of nuclear war was scaled up to be so bad that the living would envy the dead. Probably true in downtown ground zero, but out in West Forsaken, upwind of the fallout, there will be lots of survivors looking for arable land and water for crops, cows and the kids.
The only catch to being a winner is you have to get to the safe spots early; get there "early".
If all the big boys go full retard and unleash the full destructive capacity that they have been so industriously producing for the last 60 years what is left of the biosphere on Earth will only be fit for cockroaches and algae and the living humans will envy the dead.
You don't know that. We now can have all-electronic fiat currency, which was never possible in past eras. Therefore, the "Zero Lower Bound" no longer exists. Interest rates can go from + to - infinity. We do not know the dynamics of a fiat system with negative rates. The zero bound might behave as an event horizon -- in which case there is no going back. Hyperdeflation is now possible for the first time ever. And hyperdeflation is just as destructive as hyperinflation. For either case, gold is a good store of value.
The price of paper gold may drop, but it remains to be seen if there will be any available at the official manipulated price.
They have a cure for that....MOAR printing
I think assuming all people that buy Gold due to the risk of inflation is a mistake. I consider it a savings vehicle safe from the greedy hands of the financial industry.
That is actually the same thing or I'm on acid.
ALSO GOLD TO HIT 5K NEXT WEEK GUYS BUY PHYZZ NOW. GLOBAL MARKETS BOUT TO CRASH GET YOUR SHORTS IN NOW!!!
microdot or squares?
Gold, in hand, is a savings storage device w/o counter party risks. Remember this. If real deflation were allowed by the banksters (ok, stop laughing), some of your savings, outside of gold, will necessarily evaporate. For example, if half of the US debt (the banks' safest holdings, since they swore off gold) were extinguished, gold prices would drop in half, at least temporarily. Half of something will still beat all of nothin'.
Since QE ended, institutional money is seeking the 'safe haven' of US debt, driving up the dollar. Interestingly, gold is holding it's own against FED toilet paper because foreigners are buying gold for safety. Also, as long as foreigners seek the safety of US debt, gold can/probably fall further in dollar terms. All the while, the Fed. Gov. will pile on more un-repayable debt to accomodate them. The ultimate debt collapse will drive even more savers into gold.
All revaluations of paper currencies and new issues are defined by their ratio to gold. All inflations end in deflation and issue of new currency, sometines from a new government. This history is thousands of years old and it is the same story with different peoples and places.
Ten percent of net worth in gold is about right as most revaluations / devaluations go to at least 100 old to 1 new in order to make the effort and work "worthwhile". Nobody revalues or issues new currency for a 20% difference...
At 100 to 1 new currency, your gold holdings should provide enough resources to establish a new beginning for your family and help your community recover from the disaster. So absolutely very few people hold gold that those who do will be either threatened or hailed as genius. Disclose your holdings accordingly.
Gold is a hedge against both inflation and deflation.
During inflation periods gold outperforms cash but underperforms stocks and bonds.
During deflation periods gold outperforms bonds and stocks but underperforms cash.
Obviously there is different types of inflation/deflation like CPI or asset prices.
So results are variable.
I don't know if gold will go up or down. I do know that my dollars smell like strippers.
What is your secret to getting strippers to part with their cash?
Deflation in these times means defaults. gold has no counterparty.
You decide if you care about the price of it tomorrow or next year.
Who said gold is an inflation hedge?
More importantly-
If gold is money, and
Deflation is when the price of money rises,
Why would "money" out-perform "money" when the price of "money" is dropping?
I think the idea is any periods of deflation would be short-term in the presence of a free money printing press, and would rapidly transit to a period of high inflation. Deflation is also not when the price of money rises, but when the availability or supply of money decreases.
When the supply of available money in the marketplace decreases- the price of money rises, and the amount of goods and services which each unit of money can purchase rises (as the price of those goods and services falls).
Deflation and inflation are two sides of the same coin. That coin being credit based money. Both are disruptive to the economy in general and peoples financial well being in particular. In our heavily leveraged financial sector, deflation will lead to horrific levels of failure throughout. The finacial sector can cope with inflation. Deflation will lead to a wave of bankruptcies. Watch gold demand explode as deflation is confirmed as the only protection is to withdraw your wealth from the financial sector. Gold is the best vehicle to make your getaway with.
If you have been saving in gold for a decade or more, you clearly understand the deflation as the cost of nearly everything has fallen in terms of gold. Don't get conned by the bankers telling you that gold is an inflation hedge. Gold typically out performs in deflationary times as opposed to inflation. Think of gold as the ultimate "cash" and you will get it. If your still dubious you can look up the study by Ray Jastraam, Gold in Deflation.
BTW... Our gold volumes are up dramatically since December. In January we sold more gold to the public than the first four months of the last fiscal year. Other vendors I talk to are seeing the same thing.
Both NIRP and Gold transactions amount to the same thing: User FEES by middlemen.
Some Fee comparisons of Buy/Sell spreads...
Kitco Pool Acct: 1.7%
Local Coin Shop: 3.7%
This is like bad NIRP. And EACH time you buy/sell, you get dinged with this Spread; so it turns into "NIRP on Steroids".
Cognitive Dissonance is a real biatch, when it rattles our internalized beliefs (worldviews), isn't it?
When you hear the spot price of gold quoted, that is for 100 oz in bar form delivered in New York. It costs to have those bars converted to smaller wafers and/or coins then shipped to various bullion dealers around the world. The actual spreads between buy and sell for most popular products are less than what you would pay on most mutual funds. Another plus is that the dealer who sold you the gold does not get a "kickback" every year (at your expense) like those who sell mutual funds and most other financial products.
When you consider a spread of 3.7% includes the buyers premium as well as dealers' premium (or discount), I am certain that would compare quite favourably to most other financial products.
nothing margin hikes can't handle...
The message is loud and clear... DONT BUY GOLD... but you should ask the question WHY is that message so importat to the bankers and what does it really portend
Yes it is and that is exactly why TPTB must continue to pressure gold. Govt's and their CB enablers can not allow gold to be percieved as the better store. It's fine to let gold rise when the world is truly ok but they can never allow it to rise when everything is NIRP'ed. Gold will show it's true value only when this global financial comedy finally concludes.....sooner than we think....
If you really want to know what the consequences of NIRP will be on gold, open the history books and study what happened in Argentina in the early '70s, with the nationalization of deposits. After all, NIRP will bankrupt banks as intermediaries between central banks and end users of credit.
Anyone interested in supporting this White House petition. It's toungue-in-cheek but makes an obvious point. 90 more signatures and will be publicly viewable from the petition home page:
https://petitions.whitehouse.gov/petition/provide-kneepads-all-congressmen-prevent-injury-while-groveling-speech-israeli-prime-minister/wvNqkwjw
You are a damned fool if you store your PM in a bank or other "secure" location that isn't your house.
And you're a bigger fool if you think your "paper" gold is worth more than the cost of the ink to print and the paper to print on.
Sure, gold should go up, assuming we had an unmanipulated market.
i have a gift for all ya'll who know what Gold and Silver are and have always been...
next time u talk to someone who doesnt and says this moneychanger controlled government doesnt do what they do the keep it out of their hands - show'em this...
http://www.nber.org/papers/w16946.pdf
Nothing to do with inflation/deflation. The value of gold is inversely related to investors faith in governments and central banks. For whatever reason right now, investors faith in governments/central banks to continue this fraud is high. As long as that is the case, the price of gold will suffer. However, this can and will change rapidly when the time comes when that trust is broken.
stateside
That reason is people have been separated from their savings via pension funds. It's the institutions (foreign and domestic) who help create demand for US debt. They don't buy gold. In the end, we, the tin foil hat wearing gold buyers, will still have our savings intact.
If Boehner grew a spine(and bought a bullet proof vest), he'd shut the gov. down over the next budget. This would immediately wake people up to the fraud of US debt. Of course, that's not going to be allowed to happen. So, higher US debt/taxes are guaranteed. Another reason to keep your long term savings in gold.
A central banker , a license to conterfit money , massive media propaganda and a crooked politico meet in a bar to discuss how an audit would send them all to prision.
Before any of you think of spending money with Kitco, take a gander about what they think about you:
http://money.cnn.com/2015/02/12/investing/buy-gold-market-fear/index.html
If you believe the exec at Kitco, at least 25% of the gold investment community are "crazies".
Yeah, and you get Salesman of the Year 2015.
What a douchebag.
Got that feeling when dealing with them awhile back, stopped buying from them....
Don't get me wrong,,, a lot of sellers probably think that very thing, but they're smart enough to let it be.
Kitco has just gotten so big they think they don't need the little guy,,, like other corporations, LexMark comes to mind... they may be right at this particular juncture....
Problem is, global capital is NOT "looking for a place to hide"...as usual, it's very short-sightedly and desperately chasing paper currency-denominated YIELD.
Hopefully it will do so all the way to ZERO...
Pragmatist's move:
.
1. USE CASH. KEEP AT HOME.
2. Use free checking account to pay bills online or write checks
3. Using Cash undermines the FRB (Fractional Reserve Banking), i.e. it's "anti-Ponzi"
Added benefits:
- You will spend less, as it's harder to use Cash than Plastic
- More privacy from Data Harvesting, Profiling and Marketing industry
p.s. If places like Greece and Ukraine have taught us anything, is that even people of European heritage and culture will submit to unbelievable government and banking abuses -- and still not revolt. Ditto for USSA: There will be NO revolution. Not unless/until the EBT/SNAP stop working and the store shelves are empty. But anything short of these extremes will preserve the Status Quo for Big Bro, IMO. Hence...
"Whoever Runs the Bank first, runs it best."
"Avoid the Dash. Keep a stash of Cash."
A little cash on hand is OK but most of your net worth should be lost in a boating accident.
The Bond Market is no longer needed by Government to borrow money from private sources as in the past...
Now the Central Banks buy the Bonds and simply add the amount to their balance sheet.
Then later,,, without fanfare,,, the Central Bank just writes it off their books....
Voila! Debt gone!
I love it when a plan comes together!
The power people have to convince themselves it will all work out is without bounds. To be out of the box is lonely and not a normal state for a herd member. Deflation is a painful state for debtors and an irrisitable temptation for central banks and their political minions. Deflation followed by inflation culminating in hyperinflation when the herd looks up at the helicopters. It is better to figure out they are coming and if you are nimble listen for their approach.
The reason we were successful in the past:
1) Population was growing, more people being born makes higher demand for:
-Transporation (gota move all those newborns around and gota move all the baby products to their destination)
-Housing (families that get bigger need bigger apartments/homes) someones gota build them/repair them
-Farming (more people to feed = more stuff to farm = more farm jobs)
-Energy (You need to transport, heat and cook to keep the growing population alive) this creates jobs
2) Banking used to invest into productive assets (plant equipment), we would borrow against a portion of future prosperity in order to... produce that future prosperity.
The reason society seems to be crumbling:
1) Lower birth rate , the ratio of people being born to people being put 6'ft under is low, lower birth rates creates lower demand for all the stuff mentioned before, which means less jobs for those of us that are still walking this earth.
2) Banks no longer lend against future prosperity in order to invest in plant and equipment... all investment has become... speculative (Banks borrow to gamble on asset appreciation or depreciation or to buy profitable insurance policies on disasters they predict will happen , or they use the money to bribe government to bail them out when their schemes come undone )
So we went from high birth rate, and high productivity and high production and high investment in productive things like machines/factories etc... to lower birth rates/abortions/old people/ getting everyone sick so they buy medicine and banks gambling what little wealth is left in society with an insurance policy (government bailouts) to cover their ass when they lose (so that they can make profits off the losses).
The solution is clear....
Start pounding out babies, and stop borrowing money to buy shit you dont need ;) and change the laws so that banks have to invest in small businesses in order to turn a profit.
People keep looking at these companies like they are some kind of mega big company, most of these companies only employ small fractions of the population 10 ~60,000 people world wide.... thats nothing and most of those jobs are probably bullshit jobs that dont produce anything (desk jobs).
People need to snap back to reality and go back to the way things were . . . back when society actually sorta functioned... as a ... society.
It all starts with the family values a society has, if a society / civilization does not value family/progeny than that civilization will go extinct in short order, we have experienced a complete breakdown in human/family values as a civilization... promoting homosexuality, feminism extremism, liberalism, "progressivism" (women more focused on work than being a mother ), demonization of the male aspect of society . . . etc... abortion . . . the values in this country are turning into the exact opposite of what built this country....
So if back then we were the mirror of what we are today and we built this country, what happens then? well you will probably destroy this country with values like that.
Look at the chinese! why do you think they now have the worlds biggest economy???? POPULATION++++++++++++++
GDP= Population * time + resources
"Many hands make light work", ... No hands... makes... no work, for every person being born you probably create 4 ~ 8 future jobs to keep that one persons wants and needs fulfilled.
I hear what your saying... a growing population equals a growing economy.
However, it is possible to have a level population and a good economy at the same time... but not if it's based on debt.
When interest rates normalize, that will "crush" the price of gold. That's what they tell us.....when rates normalize......when they normalize.......normalize......
Ha, ha, ha.
Romans 12:19
Vengeance is mine; I will repay, saith the Lord.
.......Justice calls for restitution and punishment, not vengeance.
Yes.
Except that the negative interest rates have to involve money-printing, even if it is from a negative deposit rate, or there will be no money to pay that interest...and they can't loan it out if they can't get it.
I understood that my bank deposits were fractionally reserved... ergo that 90% of my deposit was in fact loaned out to someone else, and hence became that person's deposit, from where it was also 90% loaned out, and so on.
I needed a return to justify that risk over the Bank of Sealy...call it a mattress ATM.
But when I realized that it wasn't just deposits that were fractionally reserved, but EVERYTHING, from the stocks you *think* you bought from the broker, to the bonds you *think* you bought from the broker, to the commodities you *think* you bought from the COMEX... I realized that in the financial world you can't invest. To invest you have to have reasonable confidence that you actually bought something.
In fact you didn't buy anything but an irredeemable promise, which the finance industry has fractionally reserved such that any money you put with them will be used in a 9-to-1 ratio to 'bet' against you. They understand that when they fractionally reserve only one of the potential 14 (at 90% ratio) owners will ever actually get the asset. So they can use your own cash at a multiplier of up to 14 x to get the asset from you.
It is not investment. It is gambling at best, volunteering to be robbed at worst.
Once I came to that realization, the solution was obvious... don't hold paper assets, hold physical ones.