Japanese Gold Buying Spree Confirms Negative Interest Rates Good for Gold

Over the last several weeks, we’ve been building the case that negative interest rates are good for gold, and mainstream analysts have echoed our thoughts.

Last week, Britain’s largest bank, HSBC, issued a statement saying the longer the world’s central banks continue to experiment with negative interest rates, the better the outlook for gold. James Steel, HSBC’s chief precious-metals analyst, cited a Bank of International Settlements report to bolster his case:

How does this play out for gold? Positively we think. The imposition of negative rates is a sign of distress, which is gold-bullish. Furthermore, the uncertainty surrounding the long run impact of negative rates as outlined in the BIS report is also supportive of gold. The BIS report seems to say that negative rates have brought uncertainty, especially as regards their impact on financial intermediaries, but have not delivered hoped for gains for households and businesses. This is to gold’s benefit.”

Vetern trader Dennis Gartman helped make the case as well. After emphasizing in an interview on CNBC Futures Now that he is “not a gold bug,” he said as long as central banks continue expansionary monetary policy – negative interest rates and quantitative easing – the upward trend in gold will continue.

Now we have confirmation that this isn’t all mere speculation. Bloomberg recently reported Japan’s negative interest rates are, in fact, boosting demand for gold, according to the nation’s biggest bullion retailer.

Gold has surged worldwide since the beginning of the year as investors seek a safe haven in the midst of growing economic uncertainty. Takahiro Ito, chief manager at Tanaka Kikinzoku Kogyo K.K.’s store in Tokyo, said the Bank of Japan’s surprise move to drop interest rates into negative territory added to gold’s allure:

Many customers are wagering that it’s better to turn their savings to gold as a safe asset rather than deposit money at banks that offer low interest rates.”

The price of gold bars climbed to 5,027 yen per gram on March 11, but even with increasing prices, Ito said Japanese investors continue to buy gold:

Many customers usually sell gold, but we get the feeling that more customers are buying gold even at prices exceeding 5,000 yen.”

The sale of safes has also surged in Japan. Analysts speculate that Japanese are pulling cash from banks and squirreling it away at home to avoid the negative rates. But as SchiffGold precious metals specialist Addison Quale pointed out in a recent article, the people buying gold and silver to fill those safes will weather the coming monetary storm much better than those stuffing them with paper currency.

With the Japanese economy struggling, consumer demand for gold was already on the rise in the country before the central bank took interest rates negative. Demand nearly doubled from 17.9 tons in 2015 to 32.8 tons last year, according to the World Gold Council. The plunge into negative interest rate territory has increased that demand even further.

With the specter of negative interest rates coming to the US in the future, investors would be wise to consider following the Japanese lead and buy gold now, before the storm hits.

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