Negative interest rates are sweeping the world as countries try to devalue their currencies, and that’s helping the price of gold. Gold futures climbed 4.5 percent to $1,247.90 an ounce on Thursday, the highest level in a year.
“Investors are piling into gold, seeking shelter amid concerns that a turn toward negative interest rates in some countries is threatening to destabilize the global financial system,”
according to a report in The Wall Street Journal.
Negative interest rates means that banks are charged for keeping cash in certain kinds of accounts at a country’s central bank. That policy is intended to dissuade banks from parking idle cash and to pump into the economy by making loans.
Federal Reserve chairwoman Janet Yellen this week testified that the bank had considered a policy of negative interest rates, and instead chose other stimulus programs such as quantitative easing. Japan this month adopted a negative rate policy in an attempt to boost its recession-prone economy.
As countries try to spur demand by printing more money, gold looks even more attractive. Investment strategists have advised gold buying.
“Gold continues to be unloved, which I view as a reflection of investors’ complacency and/or ignorance of actual global monetary conditions,” Michael Lewitt said in his Credit Strategist newsletter. “Those who know better should use current price weakness to add to their positions.”
Gold had lost value in the past year as investors expected the Fed to hike interest rates for the first time in nine years.
The central bank raised rates by 0.25 percentage points in December and had talked about more hikes to come.
Bond prices are showing that investors think rate hikes are less likely following the more than 10 percent drop in stocks this year.
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