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Negative Interest Rates Help Denmark's Saxo Bank See Gold Going To $1500 An Ounce

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Four years of negative interest rates in Denmark have had at least one positive effect; a growing appetite for gold.

The small European country has been conducting the world's longest running experiment in negative rates, though not without problems.

One result of negative rates is that a leading Danish bank has grown bullish about gold in what could be an early indicator of what might happen in bigger European countries which have gone negative more recently.

A senior executive of Copenhagen-based Saxo Bank sees gold hitting $1500 an ounce in the next six to 18 months. It is currently at $1277/oz, up $205/oz (19%) since early January, the best start to a year for gold since 1974.

Kay Van-Petersen, global macro economist for Saxo Capital Markets in the Asia Pacific, said in an interview last week with the Australian Financial Review newspaper that the question for a trader or investor was what to do in an environment of negative rates.

It's A Game Of Capital Preservation

"No-one knows how this ends," he said. "But one thing is for sure now, it's a game of capital preservation.

"There is no holy grail, but from a macro-perspective, I think you have to look at precious metals.

"It's very old school, but there is no paper currency that has ever last more than 200 years, if my memory serves correctly. Gold, after thousands of years, is still going strong."

While other countries have drifted more recently into the upside-down world of paying a bank to stash your cash Denmark has been on the flipside of conventional saving since 2012.

Not everyone is happy with being the world's negative-rate guinea pig with complaints blossoming about sluggish economic growth as people save more to protect future purchasing power.

Investment Drying Up

A lack of fresh investment is also showing up in government economic growth forecasts which have just been cut from 1.9% for the current year to 1.1%.

Asset prices in the country of 5.6 million have barely moved for the past two years as Danes save more and spend less with the savings rate in the private sector climbing from an already impressive 21% of income in the years before negative rates to an eye-catching 26%.

But, having cash in the bank is not what it used to be because the longer it stays there the more it shrinks which might have been a reason for Danish investors to take greater risks in the pursuit of a positive return on their funds.

Less Risk Not More

In fact the opposite has occurred in Denmark with negative rates generating enhanced caution among savers who are opting for less risky assets because of concern about the future.

Rather than encourage investment, which is one of the claims made by promoters of negative interest rate, the reverse is happening and one of the more attractive investments because it is not being influenced by government activity, is gold.

Some other investment professionals are also starting to consider the benefits of zero-interest gold with a negative interest bank deposit or government bond.

A common theme, echoed last week by New York-based Cantor Fitzgerald and reported by London's Financial Times newspaper, is that gold is becoming more attractive the longer rates stay negative.

"As real rates continue to decline and perhaps turn negative, commodities such as gold will become increasingly valuable to central banks and investors looking for an asset whose value cannot be weakened by monetary policy, Cantor Fitzgerald analysts were quoted as saying.