What Could A Mass Default Mean For Precious Metals Investors?
According to Jeremy Warner, over 30 percent of all government debt in the Eurozone is trading on negative interest rates. It's tough to say what that could mean for precious metals investors, but here Resource Investing News takes a stab at answering that question.
Earlier this month, Switzerland was in the spotlight when it became the first country to sell 10-year government bonds with a negative yield. Many investors wondered what the news would mean for the gold space, and Resource Investing News took a stab at answering that question, ultimately determining that it's tough to say what the impact might be. Indeed, HSBC's Stephen Major likely summed it up best with the statement, "[w]e have unconventional central bank policies at work so you have to expect unconventional outcomes." A similar topic came to the fore this week, and while it's just as complicated, its impact for precious metals investors is a little more clear. Here's a breakdown of that topic and what its impact could be. Negative yields spell trouble The Guardian's Jeremy Warner states in an article published Tuesday that over 30 percent of all government debt in the Eurozone is trading on negative interest rates. That's a total of about 2 trillion in securities, and Warner believes that part of the reason that percentage has risen so high is that since 10-year Swiss yields turned negative, "investors have thrown caution to the wind" in a bid to find "safe assets." Essentially, their desire for safety has led them to "pay governments for the privilege of lending to them." That might sound counterintuitive, but as Russ Koesterich of BlackRock has outlined previously, there are a couple of reasons investors might be interested in that type of scenario: For one, "negative yields may make sense of you expect a significant decline in prices," Koesterich states in a recent article. Essentially, the idea is that in a deflationary scenario "real (or inflation-adjusted) yields could be positive even if nominal yields are negative." Secondly, he notes, "yields may become even more negative, which allows for profit potential for those willing to sell before maturity."