Germany’s Golden Decade

Last month, the World Gold Council published a new edition of its market update about Germany’s gold investment market. What can we learn from the report?

Before 2008, the German gold investment market was very small. But it has boomed in the past 10 years. Now, it is one of the world’s largest. Indeed, in 2016, €6.8bn was plowed into German gold investment products.

The catalyst for that rise was obviously the global financial crisis which burst out in 2008. German investors started to worry about the state of the domestic banking system (and rightly so, as Germany’s state-owned banks were heavily hit). And thanks to the emergence of the gold-backed exchange-traded commodities market, it has become easier to buy gold that is was in the past.

The European sovereign debt crisis increased the investors’ uncertainty even further. Not to mention the ultra loose monetary policy implemented by the ECB headed by Mario Draghi who pledged to do “whatever it takes to preserve the euro.” Germans have a collective memory of hyperinflation and collapses of fiat currencies (in the past 100 years, they had eight different currencies), so they were suspicious of quantitative easing and zero interest rates (or even negative yields).

Indeed, the WGC’s 2016 survey of more than 2,000 German investors revealed that: 59 percent of respondents agreed with the statement that “gold will never lose its value in the long-term”, 48 percent agreed with the statement that “owning gold makes me feel secure for the long-term”, and 42 percent agreed with the statement “I trust gold more than the currencies of countries”. It indicates that gold is indeed perceived as the safe-haven asset, or a tool of wealth preservation over the long run. Rightly so. However, investors should remember that gold does not necessarily hedge against creeping inflation and in the short term its price is driven by market sentiment to a large extent.