Continuing to navigate through the uncharted waters in the investing world and focusing primarily on exploiting various trigger points that could lead to the next wave higher in gold, I want to bring to your attention a rare development that occurred last week. While the U.S. has been attempting to combat the economic shock from the virus through different monetary policy measures, they are experimenting with a dangerous strategy only seen before in Europe and Japan involving negative interest rates. Looking at an intraday price action chart in the June Gold Futures from May 7th one can see an explosive move higher when this phenomenon occurred.
At this moment the 2 Year T-Note triggered another breakout in a more “organized” trading session rather than what we saw back on March 16th. The 2 Year Yield also punched through the record low yield close hit in September of 2011, when it reached 0.157%. Simultaneously, Fed Funds futures which are used to bet on Central Bank Policy signaled that the Fed could cut rates below ZERO.
By now you have to ask yourself, why would a country want negative interest rates?
Simply put, negative interest rates mean that the depositor pays money, to save their money which is a reversal of normal rules. Just like you and I keep a savings account at local banks, those Banks hold their excess unused cash at central banks like the Federal Reserve, ECB or the BOJ. Under normal circumstances those banks receive a small rate of interest in return. However, with negative rates the central banks charge a fee and under that thought process banks will be discouraged from saving and begin to lend more, spurring economic growth throughout the system. The only problem is that no economic growth is happening due to the shutdown meaning negative rates could be here to stay. This will in turn trigger the next wave of safe asset buying like we saw last Thursday due to temporary “cracks” in the system. Like a dam, once too many cracks keep forming, eventually the levee breaks and there is no stopping what happens next.
From a trading perspective have been using multiple strategies to try and take advantage of the expected long-term price appreciation in the precious metals markets. If you are unfamiliar with strategies involving futures or options, we at Blue Line Futures are here to help.
Good luck and good trading, Phillip Streible Chief Market Strategist 312-858-7303 Phil@Bluelinefutures.com Follow us on Twitter:@BlueLineFutures Follow us on Facebook: Blue Line Futures Facebook page Subscribe to our YouTube channel: Blue Line Futures YouTube channel
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