In the aftermath of Great Financial Crisis in 2008, policy makers had resorted to financial engineering to restore global economy. Some notable policies were Zero Interest Rates and Quantitative Easing (QE) which aimed to encouraging spending and lending. However, after so many years, these policies were deemed ineffective and so several European countries and Japan had devised the Negative Interest Rate Policy (NIRP) in a bid to revive their ailing economies. What does this mean to you as a wealth builder and how can you protect your wealth against negative interest rates?
Very simply put, for those who live in countries with NIRP, the banks will charge depositors for putting their monies in the bank. Yes, that’s right. Instead of receiving money on your saving deposits, you have to pay the bank money. This may sound strange but the intent of this policy is to prevent wealth builders from hoarding money and also to encourage banks to lend money. The objective of central banks implementing this policy is basically to prevent deflation from eroding the demand side of the market.
It is still early days of NIRP and the long-term effects are unclear. Nevertheless, by resorting to negative interest rates, policy makers had inadvertently revealed that they have run out of ideas to salvage the affected economies. Thus, it is only a matter of time that the fiat currencies collapse. Look, we are talking about major economies like Japan, Sweden, and Switzerland which have all implemented NIRP. Will United States follow suit and reverse its course of monetary policy? There is a possibility because of “peer pressure”. After all, no countries like to lose the currency war.
According to World Gold Council (WGC), bond holders “can expect little return, or even negative return, from their sovereign bonds” due to the negative interest rate environment. This has a huge implication because normally wealth builders diversify their portfolios with bonds to mitigate the risks of equities. Given that investors’ appetite for stocks will surely decrease due to the uncertainties introduced by NIRP, bonds’ effectiveness as a safe haven may be limited in this scenario.
Therefore, investors are left with not many choices to protect their wealth and the remaining investment safe haven is gold. According to WGC, the current environment favors gold demand because central banks had accelerated the purchase of gold since the 2008 financial crisis. In the second half of last year, central banks purchased a record 336 tonnes of gold. This is a frightening amount and reflected that countries are trying to diversify their foreign reserves.
Data from WGC shows that gold bar and coin demands are surging in developed markets. The popular American Gold Eagles had more than doubled in January and February, compared to 2015. In Singapore, you can choose to buy gold and silver bullion from BullionStar, one of the largest bullion dealers with more than 370 bullion products. The company has a unique retail shop, vault and advanced online system providing a one-stop shop for wealth builders to view, online purchase, collect, deposit, store, value, sell, audit or physically withdraw bullion.
BullionStar also offers customers their own minted gold and silver bars with zero spread. They have commissioned world-renowned LBMA-approved Swiss gold refiner Argor-Heraeus to produce these stylish and unique minted 100 gram 99.99 % purity gold bars.
There are many investors holding on to cash and planning the raid the stock market. My point of view is that wealth builders should be wary of the implications of negative interest rates and start diversifying their portfolios. In today’s context, cash may not be king. You may not even be aware that the value of your money in the bank is being slowly eroded away every single day. So start to take action to protect your hard-earned wealth before you regret it.
SG Wealth Builder