In Europe and Japan, their central bankers flat-out admit that they’re offering a negative real rate of return. And with a
more accurate barometer of the rate of inflation than what’s produced by the BLS, real interest rates in the U.S. have already been negative for quite some time.
Which means that if you put money in a bank and take it out a year later, your best case is that you only lost a little bit. Because if you put $100 in the bank and received a negative 1% rate of return, you would be getting the equivalent of $99 back next year.
Of course if the rest of the world begins to price in that the Fed’s monetary base has quadrupled since 2008, and now the Fed is already beginning to back away from further interest rate increases, value of the dollar is likely to decrease even further.
Additionally, many of the banks you could conceivably put those dollars in are on shaky financial footing. Deutsche Bank continues to struggle, and the central bankers have yet to offer any insight as to what happens should DB default on its massive derivatives book.
If rates continue to rise, that puts further pressure on the real estate sector. As well as the government debt markets. And remember that the banks own much of this debt. Just as they did back in 2008 when the Fed came in to print away the losses because nobody else in the market wanted to buy it with their own money. So if rates rise, the bank that’s holding your money is going to be in even further financial distress while you’re counting on them to return your capital.
Of course the alternative is that rates do not rise, because the Fed sees what’s happening and reverts back to lowering interest rates. Which means printing more money. Which means the supply of dollars is increasing, and the value is going down. Whereas with gold and silver, you have the opportunity to own assets that cannot be printed and have served as money for thousands of years more than the U.S. dollar has.
Which is not to say to take every dollar you have and buy gold and silver. Obviously there are risks to any decision that you make in life. Although if I was faced with the choice of holding $10,000 in cash versus $10,000 of gold or silver for the next 10 years, to me, picking the metals is an easy choice. If you have any questions about this, as always you’re welcome to
email me here.
The potential downside is that the banks could continue to distort the markets and push the precious metals prices even lower. But that scheme has always felt as if it’s on borrowed time, and compared to the risks of holding cash in the bank, trading dollars for gold and silver remains a great way of selling risk that’s overpriced in exchange for buying low.
-If you have any questions about this article, what’s happening with the Fed, or the precious metals market, you’re welcome to
email me here.
-To buy or sell gold and silver call
Miles Franklin today at (1-800-822-8080).
