One anti-gold argument is “it pays no interest”. But if interest rates are negative, then gold wins every single time. Here’s more on that and what Williams said…
One of gold’s qualities is that it is a store of value over long periods of time. Said differently, gold maintains it’s purchasing power. This is why as the dollar has lost 97ish percent of its purchasing power, one ounce of gold is basically $1275 instead of the $20 it was valued at prior to 1933 (yes, a $20 double eagle is not exactly one ounce of gold, but close enough).
By maintaining it’s purchasing power, gold is an inflation hedge.
Though the gold bashers are quick to say “gold doesn’t pay a yield”, or “it just sits there doing nothing”.
However, if negative interest rates, something referred “negative interest rate policy” or NIRP for short, come to the United States, forced upon us by the Fed, then those arguments get thrown out the window.
Because a negative interest rate means that, depending on how it would be implemented, that money sitting in an interest bearing checking account or savings account will be taken by the bank, little by little. Imagine a $100 deposit in the bank and a negative 2% interest rate. This means after a month, the bank takes two fiat dollars from you and you are left with $98.
In other words, money is being siphoned out of the account little by little.
Here’s more on what Williams said on Thursday 11-16-17 from Reuters:
With many major economies facing slower growth and thus lower interest rates even when unemployment is low, central banks will need to find ways to stimulate their economies that work even when many other countries are also trying to boost their growth.
“We will all be better able to contain the next economic recession if we develop approaches that succeed even when many countries are simultaneously constrained by the lower bound,” Williams said at the opening of a two-day conference on Asian economic policies at the San Francisco Fed. “And that means taking into account the nature of monetary policy spillovers.”
Strategies that central banks should consider including not only the bond-buying and forward guidance used widely in the last recession, but also negative interest rates that was used in some non-U.S. countries, as well as untried tools including so-called price-level targeting or nominal-income targeting. Central banks may also want to consider setting a higher inflation target, he said.
In addition, notice “nominal income targeting”. That’s a whole new can of worms for a different day, but he’s basically pumping Universal Basic Income (UBI).
Therefore, with interest rate policy going negative, price-level targeting, and universal income, the Fed thinks it can successfully manage wage and price controls.
That would bring on the inflation genie, a la Venezuela.