The stock market is continuing its upward trend without any signs of reversal in the first quarter of 2020. In addition, the price of gold has been rocketing, holding above $1,500.00 so far in 2020 and at all-time highs in numerous currencies.
One of the reasons the price of gold is maintaining excellent momentum, despite the thriving stock market, is that government bond debts are now at an incredible $12 trillion negative yield. While this may be an improvement over the $17 trillion negative bond debt in August of last year, this is still an absurd number.
Negative interest rates have quietly become the norm for many European and Japanese banks. The purpose of negative interest rates is to encourage banks to lend more money. Frequently, however, it is seen as a desperate means of boosting economic growth. Ex-Federal Reserve Chairman Alan Greenspan has stated that American banks may soon see negative interest rates. But that is unlikely to happen in the very near future.
The Deutsche Bundesbank, in a recent survey, has found that corporations are now feeling the effects of negative interest rates. These companies are now willing to pay for the privilege of placing their money with a negative interest yielding bank. The European Central Bank deposit rate is 0.5 percent interest rate, and its customers are feeling its effect.
According to the Deutsche Bundesbank, over half of the German lending institutions are charging corporate accounts for making deposits. At the same time, a quarter of banks are charging their retail customers for the same privilege.
Deutsche Bank and Commerzbank, two of Germany’s largest banks, are filtering the cost of negative interest to their customers. Up to 150 German financial institutions admit to using negative rate policies. While this policy mostly affects large banking customers, if continued, it could affect smaller accounts, as well. Many people would rather pay to deposit their money than tuck their wealth under a mattress. And the banks are aware of that.
The Volksbank Fürstenfeldbruck, a small cooperative bank in Bavaria, has already begun to pass along the cost of negative interest rates to its individual small account holders. The bank has explained that this will affect only new clients. It has not commented on how many new clients it expects to attract in the near future.
President Trump has called upon the Federal Reserve Bank to lower its interest rates and even going negative. At the moment, the Fed’s interest rate is hovering around 2 percent.
The Fed chairman, Jerome H. Powell, has resisted embracing zero or negative interest rates. However, he has clarified that if the rosy economic outlook should change, he would consider a different approach, indicating that more interest rate cuts may happen in the future. It is unlikely that a zero-interest rate would occur before the upcoming election. However, if re-elected,
President Trump may continue pressuring the Feds for lower rates.
The winner in all this negativity? Gold. While reserve banks around the world are turning toward negative interest rates, the price of gold has held steady an is anticipated to continue rising.