Eric Sprott says the negative interest rate policy (NIRP) in Europe—the rate bonds pay out for favoured countries like France and Germany—will eventually sour investors and turn them to hard assets like gold and silver.
In mid-July Germany sold two-year bonds at an average yield of -0.06%. Sprott says the bonds can be priced negatively since investors don't want to lose money buying bonds from peripheral European countries like Greece and Spain.
But its a policy that doesn't have legs.
"Advisors can try it for a while, but investors won’t put up with it for long," writes Sprott.
"In our view, NIRP represents the death knell for the financial system as we know it today. There are simply too many working parts of the financial industry that are directly impacted by negative rates, and as long as NIRP persists, they will be helplessly stuck suffering from its ill-effects."
Sprott says that pensions, insurers and other savers are seeing their wealth decline while bonds don't pay out and they will eventually head to gold, an asset that will perfectly fit their needs.
"In our view, the factors that have led to the emergence of NIRP bond auctions are the same factors that will drive demand for physical gold in the coming months: savers have nowhere to go for a 'safe' return."