BY: HANS ALBRECHT, CIM®, FCSI, VICE PRESIDENT, PORTFOLIO MANAGER AND OPTIONS STRATEGIST, HORIZONS ETFS
Gold and gold miner stocks were taken to the woodshed in 2013 through 2015. All those trillions in Quantitative Easing dollars (QE) just couldn’t create the widespread inflation that gold investors expected to see. Fast forward to present: gold is zooming in 2016. This has confused more than a few investors who are still bearish on gold as most inflation measures remain in check, in fact, many inflationary forecasts remain lower than they’ve been in many years. They are missing an important point as there has been a sea change in the perception for gold.
Previously considered a sideshow ‘hedge’ that was reserved for the more alternative-minded folk, the audience for the yellow metal has suddenly expanded exponentially. As some of the largest central banks in the world look to negative interest rate policies (NIRP) as a way to stimulate investment and growth, savers in those markets are suddenly finding themselves under siege.
Consider for a moment that a savings account is a fundamental and basic economic right in most stable and developed banking systems. The idea that you should be able to put your cash into a low yielding, or even zero yielding, savings account and expect it to be there when you come back later is a reasonable one. Unfortunately, this may no longer be the case. Negative rate policies are an affront to those basic rights. Six of the world’s central banks have introduced negative rates (most notably, the European Central Bank and Japan) and approximately one quarter of the world economy by output is now experiencing official rates that are less than zero.
Over 230 billion euros in deposits are subject to negative rates. Currently, there is $1.5 trillion of Eurozone government debt that has negative yields, with maturity dates greater than a year. This time last year, there were none. This previously unconventional form of monetary policy has come to the forefront in a relatively brief period of time. As of April 22nd, these central banks are showing no signs of slowing down as Japan is said to be expanding its program to consider negative rates on loans. The Beagle Boys, notorious comic book thieves, will be happy to know that safes are selling out in Japan as folks panic to find places to stuff their cash. Warren Buffett, who has a notorious dislike for gold, recently talked about stuffing Euros into a massive mattress. As we read between the lines, we realize that gold begins to explode in appeal as ever increasing numbers of ‘savers’ have essentially been driven into other forms of wealth storage. Central banks are displaying their contempt for savers in monumental fashion. There is finally a more compelling reason to now respect a method of wealth storage with millennia of proven history. And gold mining companies, in particular, are nicely leveraged and positioned to reap the rewards. Negative rates? No problem, we have a metal for that.
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