UNITED STATES August 22 2016 11:17 AM
NEW YORK (Scrap Register): HSBC said the negative interest rates in much of the world remain a bullish factor for gold.
The bank cited a Financial Times report on a study by Standard & Poor’s saying that almost 500 million people are living in a climate of negative central-bank interest rates, representing roughly 25% of global gross domestic product.
HSBC also quoted S&P as saying these rates are a clear sign of economic and policy desperation. The study cautions of the risks associated with negative-rate policies, including excessive investor risk taking, prompted by low borrowing rates.
There may be signs that negative rates are having some desired effect in the euro zone, but there is little evidence that they have led to success in Japan, according to the report.
On balance this is positive for gold, as the risks generated by negative rates are supporting bullion safe-haven demand.
“We view two of the report’s other findings as even more gold bullish. Negative rates have resulted in half of the world’s sovereign debt now yielding below zero,” said analysts at HSBC added.
“This is a strongly compelling case for gold demand, in our view, as sovereign debt offers no return and obviates the opportunity cost of owning gold. Should negative rates spread across the economy, it could trigger a greater move back into cash, which is also likely to benefit gold,” they added.