Why below zero interest rates could increase demand for gold .

The Bank of Japan joined a group of Euro countries last week and imposed a below zero interest policy. For many of these countries this is an effective strategy that should continually weaken their currency, thus making their export position more competitive. Foreign cars and handbags become more desirable if a strengthening U.S. Dollar makes these goods more affordable. To harken back to Economics 101, it is basic ”Law of Demand” theory…lower prices equals more demand!  Since global GDP figures are weak, the prospect of a low rate program spurring inflationary fears becomes less concerning for these Central Banks.

Negative rates mean that institutions and individuals are essentially paying to keep their money in the bank. The costs of protecting, storing and transferring non-bank deposits provide a rational for paying these fees.  However, on a Macro Economic level, some of this vast currency can use a permanent home. Not every Euro or Yen needs to be accessible.

Commodity prices, including and especially gold and semi-precious metals, have sold off precipitously in the last few years. One could make the case for storing assets using these commodities. Storage costs are negligible as opposed to paying a fee for bank deposits. The prospect of increased asset value due to geo- economic concerns and inflationary fears makes an additional case for the metal and its cousins. Finally in many of these “below zero” countries the accumulation of Gold has deep cultural roots.

In the words of James Bond’s nemesis Auric Gold finger;” This is gold, Mr. Bond. All my life I've been in love with its color... its brilliance, its divine heaviness.”