- The chance of negative interest rates pushed gold, silver prices higher last week.
- But year-to-date, precious metals are still not performing very well.
- After more unprecedented quantitative easing this year, there is still a lot of space ahead.
Negative Rates Pushed Gold and Silver Prices Higher
In the last couple of days, silver and platinum skyrocketed, gold surged. Gold reached 1775,80, almost its multi-year high in April by 1788,80 dollar. Silver crossed the 17-dollar-line and peaked at near 18. Platinum and palladium also made very nice jumps. But platinum, more an industry metal, is still at relatively low levels.
The reason was in big part the renewed expectations the US will need more economic stimulus. Last weekend, the chairman of the Fed, Jerome Powell, also discussed that in an interview. Some investors are counting with negative interest rates already. Although Powell rejected the possibility of negative interest rates in the U.S., many people don’t believe him. (Or they think he’ll review this prediction later.)
Meanwhile, a similar debate is taking place in the UK, which is one of the countries most heavily affected by the coronavirus. Should the Bank of England cut interest rates to the negative range? Some say that would do more harm than good. Nor has the same boosted the European Union’s economy enough. Others say everything must be done to boost the economy. Also a negative rate policy.
Low Interest is the Friend of Precious Metals
Either way, current interest rates around zero also support the exchange rates of gold and silver. But they are, in fact, favoring also all “real assets”. Including real estate, farmland, other commodity market products, and company stocks. High interest is the enemy of precious metals. The lack of interest, or the negative real interest, is their friend. Although there are also signs of deflation because of the recession, this can be prevented by central banks. (Deflation is when the average price level falls.)
For many years, negative real interest rates may stay with us. Central banks will try to drop the horrible mountains of debt that we are accumulating now. (Read about it here: Are We Facing Epic Inflation, Horrific Real Interest, and Brutal Gold Price Explosion?)
More Room for Gold and Silver Prices
In the last 12 months, gold surged 36 percent. Silver, 25, and platinum, only 6 percent. But a large part of this happened last year already. It began in spring 2019, as the US Fed and other national banks got more “dovish”. (Cutting rates or increasing asset purchases, printing money.) This year, precious metals performed not so good: Gold price surged only 14 percent. Silver fell 3 and platinum, 13 percent.
Most major national banks have launched more huge, unprecedented quantitative easing this year. This could raise the price of precious metals a lot more in the coming years. Although, it is also possible that everything else will go up a lot, including stocks and bonds. But there is definitely still a lot of space ahead for gold and silver prices. Perhaps also for platinum.
What Does This Banknote Tell us About Gold?
Let’s repeat our over image, a bill of 50 Colombian pesos, from 1984. (own scan). Because of the text saying:
The bank of the Republic of Colombia will pay the bearer 50 pesos of gold
I don’t think so. The redeemability of paper money for gold has long since ceased everywhere. I think if we are looking for an investment that preserves its value, we need to invest in precious metals rather than paper money. At least for a part of our money.
How to Buy Gold, Silver, Platinum?
There are a lot of gold, silver buying methods available, different asset classes and products. You can buy gold, silver and platinum bullions and coins, jewelry. There are physical metal ETFs (exchange-traded funds). In some countries, certificates and warrants are also popular. You can buy risky options, futures, and CFD-s.
Stocks of gold, silver mining companies may be also a good option, as stocks often pay dividends. Gold or silver miner companies can be bought also in form of an ETF, spreading the risk (diversifying the investment). Experts also can buy scrap gold, like used jewelry. But every country has own legal rules about investments, make your research locally.
Update: Smart Money is Buying Gold
Forget the drop in oil prices and the collapse in consumer spending. Some of the world’s most prominent investors are sounding the alarm about the impending threat of inflation and are turning to gold to protect themselves – wrote Bloomberg.
Leading speculative fund managers, Paul Singer, David Einhorn and Crispin Odey, are bullish on gold. Also some of the largest asset managers like Blackrock Inc. and Newton Investment Management.
More Important Readings for You:
- Are We Facing Epic Inflation, Horrific Real Interest, and Brutal Gold Price Explosion?
- 11 + 1 Grave Investment Errors Robinhood Newbies May Commit
- Negative Real Interest Rate, Financial Repression in Your Pocket – Chart of the Day
- Eight Ways How Inflation Threatens Your Income and 13 Ways to Fight It
- 6 Effective and Proven Ways to Lose Your Money
I’m not a certified financial advisor nor a certified financial analyst, accountant nor lawyer. The contents on my site and in my posts are for informational and entertainment purposes and reflecting my collection of data, ideas, opinions. Please, make your proper research or consult your advisors before making any investment or financial or legal decisions.
I have open positions in silver (long), platinum (long), gold miner stocks (long), uranium miner stocks (long), different cryptocurrencies (long), S&P 500 index (short) and Brent crude oil (short) at the time of writing.
(Photos: Pixabay.com, cover: Ageless Finance)