We have entered a new and unprecedented phase in monetary policy. Central banks in Europe and Japan have now implemented Negative Interest Rate Policies (NIRP). The long term effects of these policies are unknown, but the World Gold Council see discouraging side effects: unstable asset price inflation, swelling balance sheets and currency wars to name a few. Amid higher market uncertainty, the price of gold is up by 16% year-to-date – in part due to NIRP.
History shows that, in periods of low rates gold returns are typically more than double their long-term average. Looking forward, government bonds are likely to have limited upside, due to their low-tonegative yields and, in our view, would be less effective than gold in mitigating risk, ensuring portfolio diversification, and helping investors achieve their long-term investment objectives. Portfolio analysis suggests that gold allocations in a low rate environment should be more than twice their long term average.
"We believe that, over the long run, NIRP may result in structurally higher demand for gold from central banks and investors alike," according to WGC.
Reference: Commodities Now, World Gold Council
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