{"id":69020,"date":"2015-03-04T16:01:19","date_gmt":"2015-03-04T21:01:19","guid":{"rendered":"http:\/\/countingpips.com\/?p=69020"},"modified":"2015-03-04T20:28:43","modified_gmt":"2015-03-05T01:28:43","slug":"currency-turmoil-make-precious-metals-ownership-a-necessity","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2015\/03\/currency-turmoil-make-precious-metals-ownership-a-necessity\/","title":{"rendered":"Currency Turmoil Make Precious Metals Ownership a Necessity"},"content":{"rendered":"
March 4, 2015<\/div>
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By\u00a0Stefan Gleason<\/strong><\/em><\/p>\n

The first two months of 2015 have seen turmoil in the currency markets extend from Russia and Ukraine to the heart of Europe.<\/p>\n

\u201cCentral Banks Now Open 24\/7 Fighting Currency Wars and Deflation,\u201d blared a February 12th Bloomberg headline. Against this backdrop, precious metals have been on the rise in terms of all currencies except the Swiss franc and the U.S dollar.<\/p>\n

In January, the\u00a0Swiss National Bank shocked markets by announcing<\/a>\u00a0that it would de-link its currency from the euro. The move came one week ahead of the European Central Bank\u2019s $1.1 trillion Quantitative Easing announcement. Swiss officials decided it would be too costly to keep accumulating depreciating euros in order to maintain the currency peg. The Swiss franc surged by the most ever in a single day.<\/p>\n

With the exception of Switzerland, all other countries in Europe (and many others around the world) are trying to depreciate their currencies.<\/p>\n

Since January 1, the following central banks have announced interest rate cuts or other monetary easing measures: European Central Bank, Reserve Bank of Australia, Reserve Bank of New Zealand, Monetary Authority of Singapore, and the central banks of India, Canada, Denmark, and Sweden.<\/p>

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On February 12th, the Swedish Riksbank announced a surprise rate cut from 0% to below 0%. \u201cTo ensure that inflation rises towards the target, the Riksbank is prepared to quickly make monetary policy more expansionary, even between the ordinary monetary policy meetings,\u201d the world\u2019s oldest central bank said in a statement.<\/p>\n

Sweden joins the European Central Bank and the central banks of a handful of other countries in pushing benchmark interest rates into negative territory. These central bankers are all aiming to revive inflation. \u201cInvestors\u201d who are buying bonds yielding less than nothing (a negative rate) are apparently convinced that central bankers won\u2019t succeed in depreciating their currencies.<\/p>\n

Insanity!<\/strong><\/p>\n

Investors Now Paying for the \u201cPrivilege\u201d<\/strong><\/p>\n

of Lending to Broke Governments<\/strong><\/p>\n

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This could go down as one of the oddest, most irrational asset bubbles in history. Trillions of dollars are now tied up in debt instruments that promise to return less than the invested principal. According to a report issued by J.P. Morgan, $3.6 trillion in government bonds around the world now carry negative yields.
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\nIt raises the obvious question; why would so many people would be willing to accept a negative rate of return?<\/p>\n

You\u2019d think that institutional investors would start getting wise to holding gold as a hard-currency alternative to cash instruments that yield less than zero. The fact that gold has no interest rate is actually an advantage in an environment where competing rates are negative! Plus, unlike most of the bonds issued in this upside-down interest rate market, gold has significant appreciation potential.<\/p>\n

If inflation rises even modestly to the 2% target of European and U.S. central bankers, then bonds issued at rates of below 2% will all be losers. The two-year Treasury note yields only 0.63%. Even the recent 10-year yield of 1.98% fails to match the Federal Reserve\u2019s inflation ambitions.<\/p>\n

In this environment of ultra-low nominal yields or even negative real yields, precious metals as a reserve asset look very attractive. Many central bankers around the world agree and are busily accumulating gold. According to a report issued by the World Gold Council in February, governments around the world added 477.2 metric tons of gold to their reserves in 2014. That haul was the second biggest in 50 years.<\/p>\n

When inflation fears return to the market, as they eventually will, precious metals will become one of the premier asset classes to hold. Even now, they are performing better than virtually all other world currencies.\"Dollar<\/p>\n

The end game of these\u00a0ongoing currency wars<\/a>\u00a0is that all fiat currencies will be debased. And a true flight to quality will accelerate \u2013 with assets fleeing depreciating currencies (and debt instruments denominated in them) and piling into gold and silver.<\/p>\n

Will the Fed Chicken Out on Rate Hikes?<\/strong><\/p>\n

Of course, right now it\u2019s deflation fears that are dominating headlines. But the inflationary policy responses from the European Central Bank and others that have followed the ECB\u2019s lead have lifted gold and silver prices markedly in fight letting terms of euros and other currencies.<\/p>\n

As confidence in European currencies plunges, there\u2019s only so much corresponding dollar strength the Federal Reserve is willing to tolerate. There\u2019s been much talk of rate hikes coming later this year, and that widespread expectation has been priced into the market. Any rhetorical or policy disappointments from the Fed in the months ahead could cause traders to sell the dollar.<\/p>\n

Whether later this year or further down the road, it\u2019s only a matter of time before currency turmoil spreads to the United States.<\/p>\n

The U.S. has a higher debt-to-GDP ratio than some troubled European countries. It has higher levels of unfunded liabilities (estimated to be in excess of $100 trillion) than any other country. The dollar\u2019s status as world reserve currency has allowed the U.S. to become financially overextended. But that vaunted status is slowly deteriorating as Russia, China, and other countries form economic alliances that\u00a0bypass the dollar<\/a>.<\/p>\n

When these chickens come home to roost, you don\u2019t want to be wholly dependent on the U.S. government\u2019s promises or its currency. Sizeable holdings in physical precious metals will help make you financially resilient in the face of the spreading global currency crisis.<\/p>\n

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\"Stefan\"Stefan Gleason is President of <\/em>Money Metals Exchange<\/em><\/a>, the national precious metals company named 2015 \u201cDealer of the Year\u201d in the United States by an independent <\/em>global ratings group<\/em><\/a>. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.<\/em><\/p>\n

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By\u00a0Stefan Gleason The first two months of 2015 have seen turmoil in the currency markets extend from Russia and Ukraine to the heart of Europe. \u201cCentral Banks Now Open 24\/7 Fighting Currency Wars and Deflation,\u201d blared a February 12th Bloomberg headline. Against this backdrop, precious metals have been on the rise in terms of all […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-69020","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/69020","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=69020"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/69020\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=69020"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=69020"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=69020"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}