In a negative interest rate environment, zero-yielding gold and silver become a high-yield asset, according to perma-bear investor Marc Faber.
“Leave a million dollars with a bank, and in a year, you get only something like $990,000 back,” Marc Faber, publisher of The Gloom, Boom & Doom Report, told Bloomberg. “I would rather want to own some solid currency, in other words gold.” (Source: “Gold Bulls Feast as More Central Banks Drive Rates Below Zero,” Bloomberg, February 18, 2016.)
The yellow precious metal provides returns only through price gains; the same goes for silver.
Gold and silver have jointly been performing a “one-man show,” becoming this year’s best-ever investments, as they feed off the fact that about a quarter of the world economy is now facing negative rates in some form. Likewise, economic growth is faltering across the globe.
Gold and silver have rallied more than 10% since the beginning of the year, trouncing other commodities, sovereign bonds, major currencies, and most stock indices.
These two old precious metals are thriving, with investors speculating more central banks may adopt zero interest rates amid increasing uncertainty for the world economy.
The 10-year Treasury note has increased 3.9% this year, while platinum is up 4.3%. Meanwhile, U.S. stocks, oil, and the U.S. dollar are all in negative territory, with the e-mini NASDAQ 100 losing 10% and West Texas Intermediate (WTI) crude surrendering 15%. The U.S. dollar index is down 1.3%.
Faber said it’s more tempting to own a non-yielding asset, such as gold, when returns on other investments are hard to find.
Japan was the last economy to adopt negative rates late last month, with the aim of spurring growth. Its move followed similar ones taken by Denmark, the euro area, Sweden, and Switzerland.
Faber said in December that the U.S. is at the start of a recession and its stocks would fall this year.