Negative Interest Rates Are Gold's Biggest Positive

Written by Nick Hodge
Posted August 28, 2019

Money goes where it is treated best. 

That’s not a hard concept to grasp. 

For the past 10 years, that has been in global equities. But that is now changing. 

After the financial crisis in 2008, global stocks began to soar because of central bank interventions that included things like interest rate cuts and quantitative easing. 

You remember quantitative easing, right? That’s where central bankers huddle around a cauldron and create money out of thin air to buy stocks and bonds. 

Anyone with common sense knew it was going to end badly. But it has taken longer than anyone thought. 

Look at this chart. It’s Japanese (black), European (blue), and U.S. (gold) stocks since 2009. 

Global Stock Market Performance

Japan and Europe were able to stave off the inevitable until 2015. Their stock markets are lower now than they were then — four years, no gains. 

Money that was in those stock markets then went into U.S. stocks, which is why the S&P 500 and Dow Jones Industrial Average were able to make new highs in 2018 and 2019. The U.S. central bank — the Federal Reserve — was the only one with room to cut rates and the U.S. economy was “strong” relative to the others around the world. 

But the ability for the U.S. to remain buoyant is waning. 

Central banks around the world have cut interest rates so much that bonds are now negative in several major economies including Japan and Germany, which is the strongest economy in Europe. 

Investors now fear the same fate for the U.S. 

The Federal Funds rate is already at a historically low 2.25% and President Trump is breathing down Fed Chair Jerome Powell’s neck to lower it by a full percentage point while reinstating cauldron huddling. Meanwhile, the U.S. economy is slowing because of natural cycles and the trade war isn't helping.

This isn’t about the U.S. dollar. It is strong and can continue to be. This is about interest rates. 

If the interest rates on supposedly safe money go negative… where is that safe money going to go? 

It is going to go where it’s treated best: into U.S. stocks (for now) and gold. 

It’s not hard. 

Negative Rates and GoldGold just hit record highs in euros this week. 

Record gold prices will be coming to a dollar near you soon. 

Buy gold stocks and have a great recession. 

Or don’t. 

Call it like you see it,

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Nick Hodge

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Nick is the founder and president of the Outsider Club, and the investment director of the thousands-strong stock advisories, Early Advantage and Wall Street's Underground Profits. He also heads Nick’s Notebook, a private placement and alert service that has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor's page.

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