Solid Gold

Germans Keep Faith in Bullion

Stocks? Bonds? Germans prefer their gold. Source: DPA
Stocks? Bonds? Germans prefer their gold.
  • Why it matters

    Why it matters

    Germans are hoarding 8,200 tons of gold. Even though prices are expected to continue to decline, they are driven to buy it because of its long-term value and security.

  • Facts


    • German investors hold about 200 more tons of gold today than they did two years ago.
    • The price per ounce has fallen from its high of $1,900 (€1,489) three years ago to its current level of about $1,200.
    • The strengthening U.S. dollar against the euro softens gold’s decline for European investors.
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Measured by its sinking price, gold is less popular than it has been for a long time.

The price per ounce has fallen from its high of $1,900 (€1,489) three years ago to its current level of about $1,200. Many analysts sense that the precious metal has reached a critical juncture. A considerable drop below this price would quickly lead to a new five-year-low. The biggest skeptics are even predicting a drop below $1,000.

But that doesn’t seem to impress individual German investors very much. Instead, they are taking advantage of the lower prices to buy more gold.

According to a survey of 2,000 private households conducted by Steinbeis University in Berlin for the precious metals firm Heraeus, the average German adult owns on average 121 grams of gold. That includes 56 grams of gold jewelry, one gram more than two years ago, and 65 grams of gold in the form of bars or coins, three grams more than at the last survey. By these calculations, gold has become more popular. Almost every German owns gold in one form or another.

The drop in prices, however, offers a different perspective: In all, Germans hold about 200 tons more gold than they did two years ago, for a total of 8,200 tons, according to the study. The euro value of the larger stock is lower, however, due to the decline in prices. In all, gold-owning Germans are about one-third poorer, with each one now holding on average €3,700 in the yellow metal.

“We recommend holding up to one-quarter of liquid capital assets in precious metals.”

Robert Hartmann, Director, Pro Aurum

This has led many gold enthusiasts to reassess their positions recently. The authors of the study write cautiously about a “period of consolidation” on the German gold market. The fears of an economic downturn and anxiety about Europe’s currency union have been lessened, while important arguments for buying gold have receded.

Inflation is not an issue anymore, and there are even concerns over deflation now. Ronald-Peter Stöferle, director of the wealth-management firm Incrementum in Liechtenstein, is cautious over the price of gold in the short-term. “But the mark of $1,200 should hold,” he said.

Gold’s competition is coming from a different direction. “For profit-oriented investors, the booming stock market is considerably more attractive,” the study’s authors write. Their point of view is supported by analysts who keep an eye on the international market. “The euphoria over Alibaba’s initial public offering on Wall Street clearly shows the great demand for stocks,” said Philip Klapwijk, managing director of Precious Metals Insights in Hong Kong.

Despite all of these barriers, the interest in owning gold in Germany continues to rise. More than one-third of those asked in the survey plan to buy gold in the near future, preferably in bars. That probably has to do with the fact that the most common reasons for buying gold were its value retention and for security during retirement. These motives are long-term in nature and clash less with the short-term profit motives. This also explains why almost all owners of gold are satisfied with their investment, despite the decline in prices.

Robert Hartmann, director of the precious metals trading house Pro Aurum, has had similar experiences. His clients include many more buyers than sellers.

“We recommend holding up to one-quarter of liquid capital assets in precious metals,” Mr. Hartmann said. That is a precautionary measure given the central banks’ experiments with low interest rates and the purchasing of bonds, he said.

Doug Groh, portfolio manager and senior research analyst at Tocqueville Asset Management in the United States, who manages a gold equity fund, has made a similar calculation. He considers that metal to be a long-term investment. “It is simply a safeguarding against the destructive policies of central banks,” he said.

He said German investors should take consolation over the decline in prices, in the developments in the currency rates. The price of gold is calculated in dollars. If the dollar rises gold falls since both are competing currencies. That is exactly what happened, and it softened the losses for euro investors.

Moreover, the diverging outlook for interest rates for the United States and the euro zone is putting pressure on Europe’s common currency. That means the gold price in euros is even up by a few percentage points this year.

If the dollar optimists prove to correct, that argument could get even stronger in the future. Mr. Groh said: “I consider €1 for $1.10 realistic.” Then German gold bugs would have had good reason to smile.




Ingo Narat is a reporter covering finance issues for Handelsblatt. To contact the author:

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