We have entered a new unprecedented phase of monetary policy and this is great news for all of us who want to invest in gold. The European Central Bank along with Japan’s Central Bank has now implemented Negative Interest Rate Policies (NIRP) to counteract deflation and currency appreciation. Due to higher market uncertainty and the weakness of the US dollar, the price of gold up by almost 20% this year. Investors including Central Bank managers should reassess their portfolio compositions. According to an analysis published by the World Gold Council:
-Gold returns in periods of low rates are historically twice as high as their long-run average.
-Investors may benefit from increasing their gold holdings up to 2.5 times, depending on the asset mix, even under conservative assumptions on gold.
In addition, we expect that demand for gold as a portfolio asset may structurally increase as NIRP.
-Reduces the opportunity cost of holding gold.
-Limits the pool af assets some investors/managers would invest in.
-Erodes confidence in fiat currencies.
-Further increases uncertainty and market volatility.