KINGSTON, NY, 2 March 2015—History is being made. A unique phenomenon is in play that few outside the business media are reporting.
Last week, for the first time in its history, Germany sold five-year bonds that guaranteed a negative yield. And Germany is not alone. Eurozone nations, including France, Belgium, Finland, Denmark, Switzerland, Netherlands, Sweden and Austria, have issued bonds with negative yields.
This means investors, as a reward for tying up their money for several years, will get less money back than they put in when the bonds mature.
Broken Markets: How Hi... Best Price: $7.44 Buy New $24.98 (as of 05:40 EST - Details) Among the rationale for investors to accept a loss is that government bonds provide a safe haven in an uncertain economic future. And with banks trending toward negative interest rates (charging savers to hold their money) and bail-ins that permit seizure of deposits above the insured amounts, negative bond yields, rather than bank deposits, are the price paid for security.
Moreover, there are assumptions that in the current economic climate of deflation and weakening currencies, investors may get some protection should future deflation exceed the current negative bond yield.
Gold yes, bonds no
When I had forecast the beginning of the Gold Bull run in 2001, I based it in part on the 46-year low interest rates and subsequent ultra easy-money schemes Wall Street and Washington were peddling to the public. My reasoning was that the more cheap money flooding the marketplace, the less the currency would be worth. And the more money pumped into the real estate and equity markets, the greater the bubbles would grow. In November of 2007, I secured the domain name ThePanicof08.com in anticipation of the bubbles bursting. And, our Top Trend of 2008, made eight months before the Lehman Brother bankruptcy debacle, was “The Panic of ’08.” The Secret Club That R... Best Price: $2.23 Buy New $16.87 (as of 09:55 EST - Details)
Today, virtually anyone with an open mind and no hidden agenda – profit motive or otherwise – knows the economic facts and what they mean. The tens of trillions of central bank dollars, yen, yuan and euros, plus the unprecedented years of record low (and now negative) interest rates, have again created massive speculative bubbles in the equity markets. Therefore, growing economic uncertainty combined with increasing geopolitical instability still make gold the safest of safe-haven investments for me.
The longstanding argument made by anti-gold equity market players that it makes no sense to invest in the precious metal because it pays no interest is absolutely no longer valid in a negative-yield and negative-interest-rate environment.
And, while it is guaranteed that German and other bonds with negative yields will be worth less in five years than they were last Wednesday, the upside forecast for much higher gold prices in five years is far greater than gold selling for less than it is today.
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