gold market - investment & analysis


Gold in a World of Fed's Interest Rate Cut, Negative-Yielding Bonds, and Rising Debt

September 6, 2019, 7:10 AM Arkadiusz Sieroń , PhD

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Do you like puzzles? We do. And this is why in this edition of the Market Overview, we take on four important puzzles. And solve them for you. The first mystery is why the Fed cut interest rates in July despite the seemingly solid state of the domestic economy. We carefully examine all possible explanations and their possible implications for the gold market.

The second riddle revolves around a one-million dollar question whether 2019 is like 2007. The numbers are not the same, but the economic sequence – the inversion of the yield curve and the Fed’s interest rate cut – are quite similar, although not alike. We analyze these similarities and differences to draw investment conclusions for the gold investors.

The third conundrum is why the heck investors accept negative bond yields? Global debt bearing negative yields has already soared to about $15 trillion – isn’t it a monetary madness? We investigate this issue for you, explaining how gold should behave in the world of negative-yielding bonds.

Last but not least, we solve the enigma of low interest rates, slow economic growth and high debt. Why is the growth slower and slower, the debt higher and higher, and rates lower and lower? Forget about secular stagnation, the decline in the neutral (natural) interest rates, or other lame explanations. The true answer is that the low rate environment established by the key central banks perpetuates low rates, high debt and low growth coupled with capital misallocation. In other words, the advanced countries fell into the debt trap. We study the concept and present its implications for the precious metals investors.

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