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negative interest rates and precious metals

coinkatcoinkat Posts: 22,719 ✭✭✭✭✭
What happens to precious metals if negative interest rates arrive in the US?

Experience the World through Numismatics...it's more than you can imagine.

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Comments

  • BaleyBaley Posts: 22,658 ✭✭✭✭✭
    I think a lot of people would rather park most of their money in an otherwise 'safe' bank account with a guaranteed negative interest rate of, say -1%,

    than Risk the money in an investment that might go up or down 10 or 30 or 50% or more over any given time period. (For example, stocks, commodities, etc)

    Liberty: Parent of Science & Industry

  • Musky1011Musky1011 Posts: 3,899 ✭✭✭✭
    Well since the true rate of inflation is higher than the interest paid on savings.. Would we not already be in negative interest rates
    Pilgrim Clock and Gift Shop.. Expert clock repair since 1844

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    http://www.pcgs.com/SetRegistr...dset.aspx?s=68269&ac=1">Musky 1861 Mint Set
  • coinkatcoinkat Posts: 22,719 ✭✭✭✭✭
    While I agree with you Musky, there is something different about this.

    Experience the World through Numismatics...it's more than you can imagine.

  • derrybderryb Posts: 36,110 ✭✭✭✭✭
    PMs will continue to reflect confidence (or lack of) in the currency. This includes confidence in the returns provided (or not provided) by holding that currency.




    Negative interest rates, like inflation, destroy the value and purchasing power of currency. They are taxes that someone else is skimming off of the top. PM prices react accordingly. PM prices change only because of the changes to the value of what they are priced in.

    The decline from democracy to tyranny is both a natural and inevitable one.

  • JohnnyCacheJohnnyCache Posts: 1,663 ✭✭✭✭✭
    I think negative rates would have more of an impact on income producing real estate than any other type of asset (outside of the stock market).




    While real estate is clearly not immune to price fluctuations, income producing real estate at least provides a return on the initial investment with the continued hope/expectation that the underlying asset also appreciates over the course time the asset is held.


    In the Boston area, rental units are in strong demand, as always location plays heavily in the extent of that demand, but overall if you are a landlord you won't likely be waiting very long to fill a vacancy.




    If negative rates ever did come to fruition here in the U.S. I believe selective income producing real estate holdings would be a good play, provided you also have enough money to purchase the property outright, or with minimal loans, and you factor in being able to handle the ownership expenses for a couple of years should the occupancy rate drop unexpectedly. (That's were being selective really comes into play.)



    As for PM's, I think baley has a valid point. I also feel that with each new generation the populous as a whole in this country have less and less understanding and appreciation of PM's.



    My PM holdings are #1) insurance [for any need that could arise], #2) a hobby, #3) make up a small percentage of net worth.


    I don't see negative rates changing anything for me with respect to the PM's I hold.


  • DrBusterDrBuster Posts: 5,301 ✭✭✭✭✭
    The current big bank .00001% or .0001% on standard light cash savings accounts might as well be negative rates.

  • BaleyBaley Posts: 22,658 ✭✭✭✭✭
    Originally posted by: DrBuster

    The current big bank .00001% or .0001% on standard light cash savings accounts might as well be negative rates.





    Good point. And how does that affect prices for precious metals?



    probably not very much, compared to market demand for other reasons, changes in supply, and of course, manipulation by conspiracy

    Liberty: Parent of Science & Industry

  • rickoricko Posts: 98,724 ✭✭✭✭✭
    Negative interest rates do not directly affect PM's.... indirectly, and through currency manipulation, there can certainly be effects. Cheers, RickO
  • derrybderryb Posts: 36,110 ✭✭✭✭✭
    anything that affects a willingness to hold cash will affect the alternatives to holding cash.

    The decline from democracy to tyranny is both a natural and inevitable one.

  • roadrunnerroadrunner Posts: 28,303 ✭✭✭✭✭
    Originally posted by: Baley

    I think a lot of people would rather park most of their money in an otherwise 'safe' bank account with a guaranteed negative interest rate of, say -1%,

    than Risk the money in an investment that might go up or down 10 or 30 or 50% or more over any given time period. (For example, stocks, commodities, etc)




    Those dollars sitting in a savings account are an "investment" and can easily move up or down that same 10, 30, or 50% over any given time period. One thing you aren't factoring in is the systemic banking risk due to black swan type events. Even the 1934 gold reserve act devalued the dollar vs. gold over 50%....overnight. "Risk-free" investments and places to park your cash are usually not risk free. They are only as good as the counterparties involved and the faith in the economic/financial system.



    10-20% USDX moves in as little as 3-4 months have happened a number of times over the past 10-15 years. One has to factor in more than the interest rate being paid to determine how successful leaving it in the bank is. The tiny interest being paid or charged is almost irrelevant vs. the dollar pricing swings. Bank "bail-ins" around the world have already occurred, leaving depositors on the hooks for the banks bad investments.

    Barbarous Relic No More, LSCC -GoldSeek--shadow stats--SafeHaven--321gold
  • derrybderryb Posts: 36,110 ✭✭✭✭✭
    Yes, counter party risk with who holds your reserves is as important as how those reserves are held. Banks are no longer "risk-free," regardless of what the FDIC's marketing of confidence tells you.

    The decline from democracy to tyranny is both a natural and inevitable one.

  • s4nys4ny Posts: 1,562 ✭✭✭
    Negative interest rates are a sign of deflation which is generally bad for PMs.



    We are not likely to see negative rates for bank deposits here. Rates might

    approach, but not reach zero.



    Banks want deposits and the transactions which generate

    significant fee income. I was in Citibank yesterday and they are offering

    "bonus interest" up to $500 for new deposits.



    No depositor has ever lost a penny in an FDIC insured bank account.
  • derrybderryb Posts: 36,110 ✭✭✭✭✭
    Originally posted by: s4ny


    No depositor has ever lost a penny in an FDIC insured bank account.

    Not because of FDIC insurance and only because tax payers lost their shirts covering bank losses. Next one will fall on the depositors, the ground work has been laid. FDIC will need a bailout before the end of the first day of the next banking crisis. Look for FDIC rules/protection to be quietly altered.

    The decline from democracy to tyranny is both a natural and inevitable one.

  • s4nys4ny Posts: 1,562 ✭✭✭
    If the FDIC needs a bailout, it will get a bailout. The banking system would be bailed out

    also.



    The US Treasury made a profit on TARP and the AIG bailout.



    If it happens again, the FED and Treasury will raise FDIC coverage limits.
  • jmski52jmski52 Posts: 22,300 ✭✭✭✭✭
    Creative Accounting does not equal a profit on TARP or AIG. The taxpayers got hosed, bad.
    Q: Are You Printing Money? Bernanke: Not Literally

    I knew it would happen.
  • coinkatcoinkat Posts: 22,719 ✭✭✭✭✭
    The US Treasury did make money on the AIG bailout-



    Experience the World through Numismatics...it's more than you can imagine.

  • jmski52jmski52 Posts: 22,300 ✭✭✭✭✭
    The US Treasury did make money on the AIG bailout-

    I'd have to see the documentation on that.
    Q: Are You Printing Money? Bernanke: Not Literally

    I knew it would happen.
  • VanHalenVanHalen Posts: 3,787 ✭✭✭✭✭
    Originally posted by: jmski52

    The US Treasury did make money on the AIG bailout-



    I'd have to see the documentation on that.




    7 years of ZIRP + $4.5 trillion in QE + X = presto change-o.



  • BaleyBaley Posts: 22,658 ✭✭✭✭✭
    PM prices change only because of the changes to the value of what they are priced in.



    Oft repeated, yet nevertheless, a false statement.

    Liberty: Parent of Science & Industry

  • s4nys4ny Posts: 1,562 ✭✭✭
    The Treasury made a profit on TARP and the AIG bailout. The Treasury

    made specific investments in each bank and got a specific number of

    shares and warrants in each bank.



    When these were later sold, the Treasury made money. The prospectuses

    are all available online.



    There was absolutely no creative accounting.



    If the banks get in trouble again, they will be rescued again

    because there is no alternative.







  • s4nys4ny Posts: 1,562 ✭✭✭
    There might be some derivative issues with European banks, Deutsche Bank

    and HSBC in particular.



    Have to watch. Citi and Bank of America have not been acting well, although

    their stock prices recovered today.
  • VanHalenVanHalen Posts: 3,787 ✭✭✭✭✭
    Originally posted by: s4ny

    The Treasury made a profit on TARP and the AIG bailout. The Treasury

    made specific investments in each bank and got a specific number of

    shares and warrants in each bank.



    When these were later sold, the Treasury made money. The prospectuses

    are all available online.



    There was absolutely no creative accounting.



    If the banks get in trouble again, they will be rescued again

    because there is no alternative.











    Give them unlimited free money for years on end, pump enough QE to get the share prices up and presto change-o, the treasury "made" money on the deal! Only cost $5 trillion to make $5 billion. What a deal!



    Wall Street owns D.C. so we won't see alternatives but of course there are alternatives. Lots of them. But we'll keep shooting bullets as long as the USD Corral holds up.
  • jmski52jmski52 Posts: 22,300 ✭✭✭✭✭
    There was absolutely no creative accounting.



    When you have tens of $billions of bad loans on your books that nobody will buy from you, and FASB is coerced into new rules that eliminate mark-to-market - what would YOU call it?



    I call it "creative accounting" but maybe that's different than outright fraud. I'm not a lawyer, so I can't give you the legal term off the top of my head.



    Bankruptcy laws, some prosecutions and some firings should have taken care of the whole mess. Instead, taxpayers got punished and bankers got bonuses. Fact.
    Q: Are You Printing Money? Bernanke: Not Literally

    I knew it would happen.
  • s4nys4ny Posts: 1,562 ✭✭✭
    How did taxpayers get punished?



    The Fed QE consisted of purchasing debt securities. The Fed balance sheet

    is currently just below $4.5 trillion. These are US Treasury notes and bonds, and

    Agency Debt and Mortgage securities. The securities are worth more than

    what the Fed paid for them.



    In normal times, Fed purchases of Treasury notes and bonds increases

    inflation.



    Because of worldwide economic weakness, the liquidity created by these purchases

    has resulted in increased stock and bond prices and the increase in the value of

    the dollar.





  • derrybderryb Posts: 36,110 ✭✭✭✭✭
    Originally posted by: s4ny
    How did taxpayers get punished?

    The Fed QE consisted of purchasing debt securities. The Fed balance sheet
    is currently just below $4.5 trillion. These are US Treasury notes and bonds, and
    Agency Debt and Mortgage securities. The securities are worth more than
    what the Fed paid for them.

    In normal times, Fed purchases of Treasury notes and bonds increases
    inflation.

    Because of worldwide economic weakness, the liquidity created by these purchases
    has resulted in increased stock and bond prices and the increase in the value of
    the dollar.



    Here's how the taxpayers really got punished: This worldwide economic weakness you reference is and has been punishing each and every one of them. The weakness is a result of monetary policy makers being wrong as usual all the way back to repeal of Glass Stegall and right through easy money "everyone should mortgage a house" policy. Wrap it up nicely with "we can fix the mess we made" by distorting the markets with more easy money. Now that the punch bowl is empty there is a big sucking noise from the deflation vacuum cleaner.






    Reward the borrower, punish the saver policy does not work any better than reward the dead beat, punish the producer policy. But don't fret, the FED will save the day (again) with more easy money. As usual, F&#* tomorrow.

    The decline from democracy to tyranny is both a natural and inevitable one.

  • jmski52jmski52 Posts: 22,300 ✭✭✭✭✭
    All that Fed purchases do is to allow Goldman Sachs to front run the prices through the NY Fed and to make a commission on the transactions to boot. Paulson, Geithner, Dudley = all the same schtick. It's *always* been just a banker's shell game.



    The $4.5 trillion balance sheet are obligations of the US Govt that you and I bear the burden to pay, through no fault of our own, unless you happen to be in one of the "protected" groups. The fact that interest rates are ultra low in historical terms only means that the debt bomb is hidden until rates rise.



    The end result of all this will be much higher taxes, fewer social security benefits and business conditions that never get better. We've already been slammed with the "affordable" healthcare tax and there's plenty more to come.



    This is simply outright corruption and graft at the highest levels and the biggest skimming operation in world history. Talk yourself into believing whatever fantasy you want. I'm out.
    Q: Are You Printing Money? Bernanke: Not Literally

    I knew it would happen.
  • s4nys4ny Posts: 1,562 ✭✭✭
    Buy the banks. Buy Citi, buy BAC, buy GS.



    Buy them today.
  • ashelandasheland Posts: 22,612 ✭✭✭✭✭
    Originally posted by: jmski52

    All that Fed purchases do is to allow Goldman Sachs to front run the prices through the NY Fed and to make a commission on the transactions to boot. Paulson, Geithner, Dudley = all the same schtick. It's *always* been just a banker's shell game.







    The $4.5 trillion balance sheet are obligations of the US Govt that you and I bear the burden to pay, through no fault of our own, unless you happen to be in one of the "protected" groups. The fact that interest rates are ultra low in historical terms only means that the debt bomb is hidden until rates rise.







    The end result of all this will be much higher taxes, fewer social security benefits and business conditions that never get better. We've already been slammed with the "affordable" healthcare tax and there's plenty more to come.







    This is simply outright corruption and graft at the highest levels and the biggest skimming operation in world history. Talk yourself into believing whatever fantasy you want. I'm out.




    image
  • drwstr123drwstr123 Posts: 7,026 ✭✭✭✭✭
    Just an aside....gotta love the euphemism, IRS form 1095-B (healthcare) It's not a penalty, it's not a fine, it's not a tax...


    It's "the individual shared responsibility payment."
  • derrybderryb Posts: 36,110 ✭✭✭✭✭
    Originally posted by: drwstr123
    Just an aside....gotta love the euphemism, IRS form 1095-B (healthcare) It's not a penalty, it's not a fine, it's not a tax...


    It's "the individual shared responsibility payment."

    It's a fine for not buying something that someone else determined is in your best interest. Unbelievable.

    The decline from democracy to tyranny is both a natural and inevitable one.

  • OverdateOverdate Posts: 6,902 ✭✭✭✭✭
    If negative rates ever did come to fruition here in the U.S. I believe selective income producing real estate holdings would be a good play, provided you also have enough money to purchase the property outright, or with minimal loans, and you factor in being able to handle the ownership expenses for a couple of years should the occupancy rate drop unexpectedly. (That's were being selective really comes into play.)

    If interest rates went negative and I wanted to invest in income-producing property, I would take out as big a mortgage as the banks would allow. Reason: mortgage interest rates would also fall. A low-interest-rate mortgage would provide a decent spread between my property's income and expenses, and thus would give me flexibility to deal with adverse situations, such as an increase in the vacancy rate.

    My Adolph A. Weinman signature :)

  • jmski52jmski52 Posts: 22,300 ✭✭✭✭✭
    When rates are falling, the expectation is that rates will continue to fall. Falling rates are an inducement to borrow. When the game changes and rates start to rise, all of that debt looks good but if rates continue down, the higher interest debt becomes a burden.



    When rates go negative, all of the above gets turned on its head. This is why it's so hard to understand what's going on. Taking the above statement and turning it on it's head is difficult without running into several contradictions. Try it.
    Q: Are You Printing Money? Bernanke: Not Literally

    I knew it would happen.
  • mariner67mariner67 Posts: 2,746 ✭✭✭
    Originally posted by: jmski52
    When rates are falling, the expectation is that rates will continue to fall. Falling rates are an inducement to borrow. When the game changes and rates start to rise, all of that debt looks good but if rates continue down, the higher interest debt becomes a burden.



    When rates go negative, all of the above gets turned on its head. This is why it's so hard to understand what's going on. Taking the above statement and turning it on it's head is difficult without running into several contradictions. Try it.


    You have proved your point quite well.
    Thank you!
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  • s4nys4ny Posts: 1,562 ✭✭✭
    If interest rates on debt go negative, it will only be US Treasury securities
    because they are considered free of default risk.

    All other debt will pay interest. Rates on the debt of the most credit worthy
    borrowers will be very low.

    As an example, Exxon Mobil, Johnson and Johnson, and Microsoft debt
    due in 2 years pays around 1%.

    Treasury, municipal, and AAA corporate debt will have higher rates
    for longer maturities because in a period of very low rates, investors
    expect future rates to be higher.




  • OnlyGoldIsMoneyOnlyGoldIsMoney Posts: 3,275 ✭✭✭✭✭
    I would implement two actions if negative rates arrived at my bank.

    1. Pay off the home mortgage with accumulated cash.

    2. Add more gold to the pile - perhaps another 50 ounces.

  • TwoSides2aCoinTwoSides2aCoin Posts: 43,793 ✭✭✭✭✭
    I just know pinching pennies amounted to a lot of MS coins going AU
  • jmski52jmski52 Posts: 22,300 ✭✭✭✭✭
    If interest rates on debt go negative, it will only be US Treasury securities
    because they are considered free of default risk.


    All other debt will pay interest.



    You act as if it's inconsequential.


    Federal debt that pays no interest is in effect, free government money that corrupts most everything it touches. It undermines competition and free will, distorts markets and gives corrupt politicians the power to pick winner & losers. It's also *not* free of default risk because the obligation for paying it off is dumped onto a public that's less and less able to support it.


    The big banks love this crap because they're the prime beneficiaries. Their new banking model depends less on business loans and more on being able to charge a % on every transaction, which is also why there's a big push towards a cashless society. Banking is evolving into a skimming operation that is embedding itself as the only game in town through it's war on cash.


    The banking system needs to be held accountable, and auditing the Fed would be a good start. Bankers should never be shielded from criminal liability. Graham-Leach-Bliley never should have been enacted, and it certainly needs to be rescinded, in addition to reinstating the FASB's previous standards on mark-to-market valuation of assets.


    Interest rate structures simply provide logic to the time value of money. Destroying interest rate structures is exactly what creates "moral hazard" (which is just a euphemism for "banking industry corruption".)
    Q: Are You Printing Money? Bernanke: Not Literally

    I knew it would happen.
  • s4nys4ny Posts: 1,562 ✭✭✭
    OnlyGoldisMoney, if you have good credit, why not should pay down your mortgage?
    Your good credit would allow you to re borrow if necessary. The rates banks are currently
    paying are close to zero already.

    Jmski, you are right on. You make an argument for buying bank stocks. So far, the banks are
    far less leveraged and not taking many risks. Citi and Bank of America sell for below book value.
  • s4nys4ny Posts: 1,562 ✭✭✭
    Japan 10 year just went negative for the first time.

    German 10 year at 0.22%
  • derrybderryb Posts: 36,110 ✭✭✭✭✭
    Discussion alone of US NIRP has helped drive the dollar price of silver up 14% in the past 11 trading days. This is in the face of a struggling euro economy/currency which should normally strengthen the dollar and weaken dollar price of PMs.

    Negative interest rates are a sign of central bank panic and are just another attempt to keep over inflated bubbles from popping. While the world tries to get out of debt central banks will continue to do all they can to increase that debt. Like it or not (I like lower prices) deflation is a natural result of over pumping by central banks. Central bank panic causes loss of confidence. Loss of confidence in economic policy drives up prices for PMs. NIRP indicates the seriousness of central bank panic.

    Also good for PM prices is the threat of removal of a return (a positive interest reward) for saving cash. Negative interest rates will redirect savings into something that is perceived to be productive for the saver. While PMs offer no outright return, savers are starting to realize that physical metals do offer protection from NIRP skimming by the bankers.

    Also lost in translation is the negative effect that NIRP will have on small bank survival and even possibly credit unions. Power play by the big boys?

    Keep an eye on the yen. Further rush to it as a risk-off safe haven will also drive metals higher.

    And, this just out:

    Gold will smell blood of negative rates

    The decline from democracy to tyranny is both a natural and inevitable one.

  • s4nys4ny Posts: 1,562 ✭✭✭
    Derryb, if you and I owned a small bank in a village could we make money?

    We would take deposits and make loans and issue credit cards.

    I don't think the FED can let rates on customer bank deposits go negative. There was
    a lot of conversation yesterday when Janet Yellen testified to the House.
    Congressmen questioned if the FED paying banks 0.50% on bank deposits at the FED
    was a subsidy.

    She will be testifying to the Senate today.
  • derrybderryb Posts: 36,110 ✭✭✭✭✭
    good discussion on NIRP

    "Negative interest rates act effectively as a hidden tax funneled directly to banks. They are inherently unhealthy."

    The decline from democracy to tyranny is both a natural and inevitable one.

  • derrybderryb Posts: 36,110 ✭✭✭✭✭

    The decline from democracy to tyranny is both a natural and inevitable one.

  • derrybderryb Posts: 36,110 ✭✭✭✭✭
    Survey says. . .

    How savers would respond to Negative Interest Rates.

    image

    There's not enough cash in the system to support US savers who would "withdraw a significant amount of my savings and put it in a safe place" (hoard cash).

    And this is just the savings account holders. Would money market accounts, CDs and checking accounts see similar cash reductions?

    Looks like if the war on cash is lost that the printing presses will be needed to meet the demand for it. This is the real reason cash has to removed from the equation before negative rates can accomplish their mission of "forced consumer spending."

    The decline from democracy to tyranny is both a natural and inevitable one.

  • derrybderryb Posts: 36,110 ✭✭✭✭✭
    Originally posted by: s4ny
    Derryb, if you and I owned a small bank in a village could we make money?



    You mean like in years past when banks required good credit and good income and served the customers and not themselves? They were profitable then - no reason you and I wouldn't be profitable today.

    We could even give away toasters. image

    The decline from democracy to tyranny is both a natural and inevitable one.

  • mariner67mariner67 Posts: 2,746 ✭✭✭
    If interest rates go negative I am pulling out of all other assets and going full cash as I think that would be safest because all other asset classes would become bubbles, including PMs.
    Timing bubbles is too hard as many here know, especially with PMs.
    JMHO.
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  • derrybderryb Posts: 36,110 ✭✭✭✭✭
    Negative interest rates are a central bank's next-to-the-last-ditch effort to force consumers to spend. To make negative interest rates do the job, the hoarding cash option has to first be eliminated. The way you eliminate the hoarding of cash is to eliminate as much actual cash as possible and force the electronic transfer of money.

    Their final effort? Printing money and putting it directly in the hands of consumers. This is what will send precious metals through the roof.

    The decline from democracy to tyranny is both a natural and inevitable one.

  • bronco2078bronco2078 Posts: 9,964 ✭✭✭✭✭



    I think that negative interest rates are more of a way to stir up the 99% than anyone's idea of a fix. It's idiotic unless you make money via taking a percentage of transactions .

    The chaos that would cause is an opportunity for those with deep pockets to acquire hard assets at a discount.

    Not stocks but real assets , metals or real estate . Gold you can carry but it doesn't bring income , real estate brings income but location, location, location as always.

    I'll go long mobile homes so I can rent them out and at the same time move them to safer locations as the cities burnimage

  • USASoccerUSASoccer Posts: 445 ✭✭✭
    Real Estate will be good, people will always need a roof over their heads.
  • mariner67mariner67 Posts: 2,746 ✭✭✭
    Originally posted by: USASoccer
    Real Estate will be good, people will always need a roof over their heads.


    Like in 2008-9?
    image

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