Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Case for Gold Keeps Getting Stronger As Negative Interest Rates Spread

Commodities / Gold & Silver 2019 Aug 20, 2019 - 07:40 AM GMT

By: MoneyMetals

Commodities

The world has truly entered uncharted waters with negative interest rates spreading so far and wide. 

Frank Holmes, CEO of US Global Investors, recently noted that a whopping 25% of all bonds sold globally now carry a negative yield. “Investors” are even buying some “junk” rated bonds which will repay the bearer less than purchase price upon maturity. 

Now European banks, who have been absorbing the European Central Bank’s 0.4% charge to hold deposits, are throwing in the towel and getting ready to pass those charges on to clients. 


Wealthy depositors at the Swiss bank UBS will soon start paying the bank 3/4 percent to hold cash balances above 2 million Swiss francs. 

Some of those clients may turn to physical gold. For starters, the 0.75% negative interest rate to hold cash is roughly double the cost of storing $2 million in gold bullion. 

And holding gold in allocated storage means investors don’t have to rely on an institution like UBS as their counterparty.

The Swiss firm, like other major European banks including Deutsche Bank, is troubled. It has legal liabilities, including a $5 billion fine recently imposed for assisting clients in tax evasion. 

The bank’s share price is back at the lows seen during the 2008 Financial Crisis. The Financial Times observed wealthy clients leaving UBS early in the year. 

At this point, investors are wondering if UBS will survive. Yet remaining wealthy clients will be asked to pay the struggling bank for safeguarding large deposits. The UBS customer exodus could soon pick up speed. 

There is something both broken and ominous about the spread of negative interest rates. In a healthy economy, lenders do not pay borrowers to take their money. And depositors do not pay their bank. Both scenarios are unnatural and unprecedented. 

Central bankers, in all of their wisdom, are determined to force people with capital to deploy it. They want people to spend, to make capital investments, to continue buying real estate and stocks despite extraordinarily high valuations. 

The trouble is that many investors are not seeing growth and opportunities for investment. Instead they seek safe haven. They buy more and more bonds with negative yields and they hold cash in the bank, despite the fact that deposits have earned nothing for years. 

Meanwhile, perpetual inflation exacts its own toll on the purchasing power of all this capital. 

To calculate the real cost of holding negative yielding bonds and deposits, the rate of inflation must be added. In Europe, consumer prices have been rising at a little over 1.5% per year. The true cost of holding large balances at UBS will soon exceed 2.25% annually. 

First, zero interest rates failed. Then moving the rate for deposits to negative 0.4% failed as reluctant retail banks were slow to pass the cost along to their clients. 

Now these banks are starting to fall in line. They have little choice as the ECB signals its intention to keep pushing, forcing rates even more deeply negative in the months ahead. Yet there is little reason to expect the central banker’s gambit to succeed this time. 

If the wealthy did not find great opportunities everywhere for their capital when it yielded nothing, they aren’t likely to suddenly find them now that central bankers are turning the screws on them another crank. 

Central bankers may convince wealthy people to pull cash from the banks, but they aren’t necessarily going to go on the desired spending spree. Our bet is that, instead, they will seek other safe havens, including precious metals.

By Clint Siegner

MoneyMetals.com

Clint Siegner is a Director at Money Metals Exchange, perhaps the nation's fastest-growing dealer of low-premium precious metals coins, rounds, and bars. Siegner, a graduate of Linfield College in Oregon, puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals' brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

© 2019 Clint Siegner - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in