Does the case for gold in a world of negative interest rates need to be spelled out further?
Contrarian economist Marc Faber did so recently in a Bloomberg interview, saying, Leave a million dollars with a bank, and in a year you get only something like $990,000 back. I would rather want to own some solid currency, in other words gold.
Now a new CNBC story confirms that even bedrock money-market accounts are at risk of becoming money losers.
Earning zero or even less: Over the last eight years, interest on money-market funds has declined significantly, writer Bryan Borzykowski noted. In 2007, rates were around 4.5%. Today they’re at about 0.1%. If rates fall further, Americans will be lucky to even get a single basis point on their investment.
The next quote is really a shocker for those who need this losing proposition quantified: At this rate, your money will double in 6,000 years, said Mike Geri of RBC Wealth Management. You’re essentially earning zero. Its horrible.
The end of money-market funds?: Negative rates are the biggest calamity for the industry since the oldest money-market fund, the Reserve Primary Fund, broke the buck in September 2008 after the Lehman Bros. failure, with its share price falling to 97 cents versus the $1 minimum expected of such funds. That shocking dip, in an investment hitherto thought to be safe and stable, caused a run of redemption’s from money-market funds as investors liquidated holdings for fear of losing capital.
The increasing likelihood of negative rates is now threatening the entire money-market industry, according to CNBC. If rates go negative, then theoretically, they might actually have to pay an investor to keep money in a fund, it said. That would likely spell the end of the industry.
Safes to store cash selling out in Japan: Want more proof that negative rates are coming? The war on cash is the latest sign, with calls to ban high-denomination bills growing. Just look at some recent events and published commentary. The Wall Street Journal reported this week that secure storage safes are in hot demand in Japan, which imposed negative rates in January. According to the article, one $700 model has already sold out.
Look no further than Japans hardware stores for a worrying new sign that consumers are hoarding cash the opposite of what the Bank of Japan had hoped when it recently introduced negative interest rates, the newspaper wrote. Signs are emerging of higher demand for safes a place where the interest rate on cash is always zero, no matter what the central bank does.
Swiss demanding big bills: Meanwhile, The WSJ also noted in a separate story that demand for a high-denomination note is soaring in Switzerland, which instituted a negative-rate regime in 2014. Demand for Switzerland’s 1,000 franc note ($1,010), one of the largest denomination bills in the world, rose sharply last year after the country’s central bank cut interest rates deeply into negative territory, it reported. Holding money in cash would protect from the risk of Swiss banks at some point charging a broad range of customers to deposit money.
NYT backs killing $100 notes: And in a new editorial, The New York Times backed Harvard economist Larry Summers recent exhortation to abolish the $100 bill. There is no need for large-denomination currency, it argued.
Bloomberg writer Mark Gilbert also posed his own so-called modest proposal to the debate, urging that officials withdraw the big-ticket notes with, say, six months notice to allow legitimate hoarders to cash them in. Then, reintroduce the high-denomination notes with new designs and let it be known that the same exercise will be repeated at random intervals in the future. That way, those who want to enjoy the freedom to store bundles of cash wont have their civil liberties curtailed, while the bad guys will be deterred from amassing piles of currency that could become worthless to them at any moment.
Make no mistake, though: Calls to abolish cash on the basis that large bills are the tools of criminals, terrorists, and drug dealers are a red herring. The real goal is to abolish cash as a favor to the central banks, who are champing at the bit to institute negative-interest-rate policies and force everyday savers into digital forms of currency that can be tracked and controlled at the technocrats whim.
Metals are the ultimate NIRP end-around: But all this talk of banning cash to facilitate a negative-rate environment is irrelevant for those who hold physical precious metals, argued Dave Kranzler of Investment Research Dynamics.
Lost in this fog of fear is the obvious alternative: gold and silver, he wrote. Worried about the elimination of $100 bills because it makes it harder to accumulate and safe-keep meaningful amounts of cash? An ounce of gold stores a lot more wealth than a $100 bill. Currently one roll of silver Eagles is worth more than three $100 bills.
And HSBC currency strategist Daragh Maher made a similar point in a recent Bloomberg interview. If you’re nervous, this is the cleanest asset play, he said of gold. You don’t have an intervention threat. You’re not worried about yields. You know this whole story about deeply negative rates and the constraint there will be people cant hold cash because of the physical costs of storing it? You can hold a lot more wealth in gold if you don’t want to have money parked in a bank that’s charging you money.