We often say, remind investors that putting money in gold yields nothing and this makes it hard to value, especially sine gold has no intrinsic value. But we had not thought of this. In certain countries, deposits not only yield nothing but you have to pay the bank to keep your money! At 0%, the investment yield of gold is higher than the yield of two-year government bonds of many countries in Europe and has an equivalent yield to that of Japan, finds Charlie Bilello, director of research, Pension Partners, a US-based mutual fund house.

 

In our Cover Story—Gold Turns Cold (page 3) we mentioned that the movement of currency rates can influence the value of gold. Gold, like most commodities, is priced in US dollars. Other things being equal, gold prices will go up in a particular country, if the currency of the country turns weak or perceived to be weak. This is precisely why Indians don’t remember that gold prices had crashed from a high of $850/ounce in 1981 to $250/ounce in 2001 over 20 years. Weakness of the rupee is what pushed the price of gold up in Indian rupees, even though gold declined by 70% during this period.

 

 

 

 

“Gold may have been down last year in dollar terms, but for Japanese and European investors faced with a rapidly depreciating currency it was one of the best investments,” mentions Bilello. With a rally to start the year, Gold is now up over 6% since the start of 2014 in dollar terms but up 19% in Yen terms and 30% in Euro terms, he writes.

 

That apart, today, certain countries are facing not only negative real interest rates but negative nominal interest rates as well. Germany, for example, has negative interest rates on their government bonds through six years.