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Is Your Portfolio Ready for Negative Interest Rates?

Oct 15, 2019 | Kevin Troy |

Is Your Portfolio Ready for 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 spreading across the world—Japan already has negative rates, the European Central Bank just lowered its deposit rate to a record-low minus 0.5%, and President Trump is calling 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. If this is the best way to protect your investments, why are so many financial analysts and investors so adamantly against it?

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: investing in gold. Holding physical gold will not incur any negative interest rates, and it will be outside the hands of the banking system. Gold 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, are investing in gold like never before, which will increase the pressure on the US dollar and further strengthen the price of gold.

As an investor, it’s crucial that you include gold in your portfolio to grow and protect your investments. With negative rates coming, anyone holding gold 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 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?

If you want to protect your investments from negative interest rates, schedule a free consultation with me, and I’ll walk you through how you can invest in gold or other precious metals.

About Kevin Troy

Kevin Troy

Kevin has spent over 16 years in the financial industry, focused primarily on precious metals as investment assets. He has published many articles on buying and selling precious metals along with the best entry and exit strategies for various financial assets. He has helped thousands of clients protect, preserve, and safeguard their investments with precious metals and has been with Gold Alliance for more than two years as a leading Sr. Portfolio Manager, overseeing a large portion of our clients’ portfolios.