Central Bankers’ Belief that Cutting Interest Rates is the Panacea for All Crises Will Eventually Fail, Sparking Higher Gold and Silver Prices

rising gold and silver prices

Gold and silver assets are still flying under the radar of most investors today despite the bubble of everything and the coronavirus elevating levels of extreme risk around the world, conditions under which one would expect higher gold and silver prices. Instead, silver prices have dropped, gold prices have been relatively flat, and gold and silver mining stock prices have, in general, been weak and declining, or flat, and failed to catch a bid even on positive financial news releases.  However, the risk of the bubble of everything is much more serious than most presume it to be as is the risk of the Wuhan coronavirus. Living in Asia and having witnessed precautions that the public is taking in various cities in several different countries in Asia, in response to this virus, I hope that my commentary in recent weeks has been able to give you an accurate feel for the nature of the threat, versus the speculations given by people that live on the other side of the world that have been alternately hysterical and dismissive.

Central Bankers, as usual, have continued to cut interest rates in response to slow economies and global risks to their local economies, as this seems to be their policy response every time economic growth slows down, no matter the cause. For example, the Bank of Thailand recently cut its interest rates for the third time in six months to a record low of 1% in an attempt to stimulate its economy, after already reducing it twice last year. The Bank of Korea, after cutting its key interest rate to 1.25% at the end of last year, may soon follow suit and follow the Bank of Thailand Central Bankers down the rabbit hole into wonderland. In the meantime, the Bank of Japan, for now, has kept its short-term interest rate at -0.1%.  However, cutting interest rates is certainly not a panacea for a sick economy and in fact, only creates greater price distortions in the economy, the price which must be paid-in-full at some point down the road. We only need to look at Japan’s economy for the past several decades to understand the utter failure of low and negative interest rates and Abenomics. Despite the Bank of Japan dropping its overnight interest rates to 0.5% by 1996 and basically keeping it there or lower for the last 25-years, its annual GDP, even a manipulated one, has remained anywhere from -1.5% to a paltry +1.5% for the bulk of those years. Still, the expected significantly higher gold and silver prices have yet failed to materialize. However, that does not mean they won’t.

Consequently, despite the relative silence about gold and silver in the mass financial media, gold and silver will have its day in the sun at some point this year, and in my opinion, should stay firmly on your radar screen, as higher gold and silver prices may be just around the corner.

J. Kim

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