Asset Strategy, Market Insights

Is Your Portfolio Ready for Negative Interest Rates?

Gold Alliance disclaimer

What are negative interest rates?

Negative interest rates are a bizarre concept where the lender pays the borrower for lending them money instead of the other way around. It’s been spreading across the world—Japan had negative rates even before the pandemic, the European Central Bank lowered its deposit rate to a record-low minus 0.5%, and President Trump has repeatedly called on the Federal Reserve to adopt the same strategy.

The government’s rationale for negative rates is simple: Once you implement negative rates, debt is not a problem for the government. Additional debt can be taken with no consequence. So, why are so many financial analysts and investors so adamantly against it?

Negative rates tax financial institutions—but not on gold investing

In a free market, negative rates would never see the light of day. They are part of a fairy tale, a debt-fueled economy dreamed up by politicians and central bankers. Basically, negative rates occur when central banks are charging their participant banks for parking their excess reserves with the central bank. So, place yourself in the shoes of a bank for a moment. If you don’t lend your funds, you will have to pay a fee to the central bank to keep them.

This makes negative rates, in essence, an indirect tax on financial institutions and consumers to encourage spending and lending instead of saving. Banks will be so anxious to lend money to not lose it that looser lending regulations will happen, and riskier loans will be generated as a result. All this “forced” lending will create additional debt, which will be added to the historical debt bubble we are facing. And once it bursts, central banks will have already used up their ammunition since lowering their rates further is implausible.

But our own savings will also be impacted since banks will be forced to implement the same negative rates for us, severely impacting retirees and other people saving up their money.

But there is a simple solution to negative rates: gold. Holding physical gold as an investment, perhaps in a Gold IRA, will not incur any negative interest rates, and it will be outside the hands of the banking system. Gold investing is one of the very few safe havens in today’s economy, and the precious metal historically performs well when interest rates are low. And central banks know this—Russia and China, for instance, have bought record amounts of gold over the past few years, which will increase the pressure on the US dollar and further strengthen the price of gold.

Gold as an investment—the asset of the decade

As an investor, it’s crucial that you include gold investing in your portfolio to protect and grow your wealth. With negative rates coming, anyone holding gold as an investment will be gaining from just holding it because they will be exempt from the negative rates as gold is not based on debt, nor is it a liability for anyone.

In a recent article, Ray Dalio, founder of Bridgewater Associates, the world’s largest hedge fund, stated that a big paradigm shift is coming, and gold as an investment will be the asset of the next decade. Don’t you think it’s time to have a portion of your wealth in the asset that has been protecting the wealth of our civilization for over 5,000 years?

About Kevin Troy

Kevin Troy In his more than 17 years in the financial industry, Kevin has focused on precious metals as investment assets. He has penned numerous articles on buying and selling precious metals and about the best entry and exit strategies for the financial markets. Thousands of clients have benefited from Kevin’s expertise and learned to protect, preserve, and safeguard their investments with precious metals. Kevin has been with Gold Alliance for more than 3 years as a leading Sr. Portfolio Manager, and he oversees a large portion of our clients’ portfolios.