Banks are increasing their efforts to bring low interest rates to the market. While this could be seen as just competition between financial institutions by the public, for investors and finance experts, it’s a sign of greater risks in the financial markets which could lead to devaluation of investments.
For a beginner, low interest rates here and there appear to be helpful. Small businesses can apply for loans to further their ventures, personal loans are more attractive, institutions can make use of these financial opportunities to capitalize bigger projects. While it doesn’t cause any direct harm to the market, it is an indication of an upcoming monetary deluge.
Why Are Interest Rates Getting Low?
While banks are sincerely trying to help their clients get what they want, there’s a bigger reason that prompts them to lower their interest rates.
Central banks enforce a loose monetary policy that lowers interest rates in order to stimulate economic growth. When interest rates are low, people are encouraged to borrow and invest, which increases the capacity of the economy to produce more goods and services at lower prices.
Why Prevalent Low Interest Rates Promotion from Financial Institutions Is Alarming?
As good as it sounds, a loose monetary policy doesn’t always guarantee good results. People and businesses have the freedom to choose what they want to do with the borrowed funds. They may hold on to the money or just keep it in their deposit accounts.
Due to this, the amount of money that goes back to the economy will be a lot different than expected. This can result in a weaker currency and potentially drowning in foreign debt for an extended period.
The implementation of a loose monetary policy itself indicates that the economy needs active support from its society. To improve the gross domestic output, central banks lower the interest rates through this policy, hoping that the money would come back in the form of investments.
Moreover, assuming that the people and businesses who borrowed funds would do their part, it may take several years for the monetary policy to generate positive results.
What If It Fails?
Individuals are unpredictable, and their decisions may not be those anticipated by economic tools like the loose monetary policy. Although people will take advantage of loans with low interest rates, without the government working out a radical way to make sure that the people use it for investments, that tool won’t work at all.
When a monetary policy that encourages lower interest rates fails, it will cause huge damage to society. Bonds will lose their value, there will be hyperinflation and currencies may fall.
According to Blackrock, the world’s largest asset manager, interest rates will go down to close to 0% in the foreseeable future. There may even come a time when banks will just give away the money for people to spend.
With cash continuously losing its value, keeping it as a savings asset will be useless. Bond markets aren’t a good place either as many investors there are already guaranteed loses due to negative yielding debt amounting to USD $16 trillion.
Another factor to worry is the ever-growing oil price in the market. Together with GDP decline, high oil prices can push the global inflation rate up to five percent.
To avoid immense loss, investors must protect themselves with an asset that maintains its real value through time – such as rare pink diamonds.
When to Start Investing in Pink Diamonds?
Conflicts in the Middle East, oil price hikes, and the developing issues in theKingdom of Saudi Arabia and European Central Bank add up to the trends that affect the world market. With revelations from fund managers about huge interest cuts, everything hints to one grim destination – inflation.
With no signs of low interest rates fading away, it strongly suggests that economic and market risks won’t have a lasting solution anytime soon. As such, now is the best time for investors to protect themselves from what looms ahead with tangible hard assets like rare pink diamonds.
While inflation makes it less than ideal to invest in the stock market or even in real estate assets, rare coloured diamonds continue to prosper. In fact, vivid pink diamonds have a market-beating performance of twice than what gold can do.
Last November 2018, a fancy vivid diamond was sold for USD $50 million at an auction held in Geneva, Switzerland. The winner of the auction, Harry Winston rechristened it as ‘The Winston Pink Legacy’, one of the world’s greatest diamonds.
A few years earlier, The Pink Star, a 59.60 carat fancy vivid pink diamond was sold in the same auction house for a stratospheric amount of USD $83.2 million. According to the head of jewellery for Christie’s Americas and Switzerland, Rahul Kadakia, the stone would have been sold at a fraction of the price if the auction happened 10 years ago.
These surreal prices show a clear indication of where the rare diamond market is headed to. As the supply for rare pink diamond dwindles, and with the closure of Argyle mine, value is expected to climb mountains. With ever-growing potential, the results of pink diamond investments could be as spectacular and as brilliant as these fancy stones.
Bank loans with low interest rates are very tempting for individuals, small businesses, and even corporations. While this is born out of a central bank’s monetary policy with the intent to stimulate the growth of the economy, the tool doesn’t guarantee results. As people have free will, they may choose to keep the money and not invest it back in the market.
When this monetary policy fails while the country continues to drown in debt, different markets will crash. Money and other assets will lose its value as inflation rate climbs.
Investing in pink diamonds serves as a guarantee and a smart move for investors who want to protect themselves from the eventuality of inflation caused by different factors including a failed monetary policy that encourages low interest rates.
The value of these rare coloured diamonds is only expected to go up once the market realises that the pink diamond reserve will be cut up by 90% as Argyle mine closes in 2020.