When a nation imposes negative interest rates, consumers try to find safe havens to protect their wealth. Swedes have been using microwaves to store their cash, while Danes have been purchasing tangible assets. What about the Japanese? To them, gold is the answer.
Earlier this year, the Bank of Japan (BOJ) implemented subzero interest rates as an attempt to spur economic growth. The central bank said it could slash rates even further if the economy hasn’t been stimulated enough.
In order to shield themselves from the negative consequences of negative interest rates, Japan consumers have been buying gold. The data, according to Tanaka Kikinzoku Kogyo K.K., suggest that gold sales skyrocketed in the first quarter of the year.
Ostensibly, keeping rates at or below zero is invigorating demand for precious metals. In the three months ending March 31, gold bar sales soared by 35 percent to 8,192 kilograms.
The Japanese have been avid gold buyers for quite a while now. Since the country has had low interest rates for years, consumers have sheltered their cash by purchasing gold. Consumer demand in gold in 2015 doubled to 32.8 metric tons.
But this trend isn’t just occurring in Japan. It’s transpiring in other countries where subzero rates are present.
Andrea Lang, director of marketing and sales at the Austrian Mint, told Bloomberg News that Europeans are buying a lot of gold as a safe haven.
Of course, this is just the common reaction, says the World Gold Council (WGC).
“History shows that, in periods of low rates, gold returns are typically more than double their long-term average,” the WGC said in a March report. “Over the long run, negative interest rate policies may result in structurally higher demand for gold from central banks and investors alike.”
At the time of this writing, gold is trading at around $1,231 an ounce, while silver has climbed above $16.
-AM
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