When the Federal Reserves increased rates by 25 basis points in December 2015, it was referred to as an end to an era of “near-zero”” rates and the beginning of tighter monetary policies.
However, the fed is still pursuing QE and expansionary monetary policies. The chart of the day explains how easy money continues to flow in the financial system.
Since 2008, real policy rates have been negative in the United States and this is indicative of continued expansionary monetary policies. I also believe that real interest rates will continue to remain negative in the coming years.
Such an interest rate environment punishes savers and encourages speculation in different asset classes in order to generate returns that beat inflation. With real negative interest rates likely to continue, I expect volatility across asset classes. The best strategy therefore is to remain diversified across asset classes and geographies.
While gold was depressed for a prolonged period prior to beginning of 2016, the precious metal will deliver robust returns the longer negative real interest rates sustain. I therefore maintain my long-term bullish stance for gold.