Since the crash of commodity prices specially crude oil which has contaminated other commodity assets with downward spiral, the whole world is staring at 2008 repeat; at least they are talking about the letter, ‘R’ i.e. Recession. This may be far from true but few nations like Japan and much of Europe who are experiencing low inflation and weak growth, there is a “race to the bottom” in which their respective central banks vie to reduce interest rates further into negative territory.
The reasons might be very logical but the most binding is
that there will come a point at which it makes sense to transfer bank deposits
into cash, as the rate of negative interest outweighs the cost and inconvenience
of holding and transacting into bank notes.
And here comes the funny part which holds true logically.
The storage cost for gold is 0.2% or so of its value per annum; however, the
cost of securely storing and moving large piles of cash is likely to be higher
than of gold, because in most currencies, the value of banknotes storable in a
given space is much lower. Capital Economics guesses that this cost could be
around 1.5-2%, implying a lower bound on deposit rates as low as -2%. In
practice, the lower bound is likely to vary between countries. The table
depicts the picture clearly.
Whatever be the consumers’ move, the government’s intention
is to make people spend and let the economy grow.
Happy Investing :-)
