Negative Nominal Rates - The New Wrinkle

A new wrinkle in the markets is sure to make the headlines sooner or later, and that will be negative policy rates. You did not see this occur in Japan, perhaps because they have a very insular banking sector and don't accept negative rates. But that's interest rate manipulation.

If the Taylor Rule is correct, then negative nominal rates will become commonplace. Just what might that do for gold prices, you suppose, when gold does not bear an interest rate? And what will happen when gold lease rates, which have flatlined for a year in the negative, go above negative nominal rates available on government treasuries?

"Since the ECB reduced the rate of interest on deposits held at the ECB to zero, we’ve seen money flow out of the ECB. We also seen the short-term yields go negative in key Northern countries. Two-Year government bond yields in Switzerland, Denmark, Austria, Germany and the Netherlands are currently negative."

King World News

German Government Bond Yields

http://www.bloomberg.com/markets/rates-bonds/government-bonds/germany/

For Canadian investors, as the housing bubble now collapses in Canada, short term government yields will decline. What that means for the gold mining sector is that once rates decline below 0.5%, Internal Rates Of Return for gold mines rise parabolically(if they haven't already), while returns in the rest of the economy decline parabolically.

-F6