Friday, April 29, 2016

Gold & Negative Interest Rates
Dan Popescu analysis on the relationships between interest rates & gold ..  references a Swiss bank & wealth manager: "Investors are buying more gold as an alternative to holding Swiss franc cash deposits .. We keep noticing that gold is coming back into favour with investors." .. Popescu explains how in a negative interest environment, gold is the best way to store large amounts of cash - "With the looming threat of cash bans and with the one-hundred-dollar bill the largest denomination both in the U.S. and Canada, one can easily see the advantage of holding gold in a safe or under the mattress. In the European Union there is also talk of banning large euro denominations like the 500-euro bill. The largest denomination in the UK is just 50 pounds .. But negative interest rates also increase the cost of doing business for banks, which find it hard to pass these costs on to borrowers. They are therefore weakening the banking system. This also encourages people to buy gold and hold it outside the banking system, despite the inconveniences .. Gold tends to perform well in declining or negative real interest-rate environments. The deeper central banks move into negative rate territory, the more gold is going to be supported, as the cost of carry disappears. High real rates are bad for gold but negative real rates are quite good for it."
LINK HERE to the analysis

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