Gold has always been one of the most popular safe investments in times of financial uncertainty. In recent years, Germany has become one of the world’s largest gold investors. Before the financial crisis of 2008, very few Germans invested in this safe metal. When the crisis spread to Europe, the EU became very concerned about the health of the banking system. To protect potentially wobbly banks, the European Central Bank (ECB) deeply slashed interest rates. They cut them so far, banks began charging customers to hold their cash. Yields on German bunds dropped into negative territory.
Led by institutional investors, Germans began looking for a safe place to move their money. Germany in particular has a sad history when it comes to unstable fiat currencies. In the 1920s, the German mark infamously became almost worthless. The country went through eight currencies during the last century, which increases investor concerns.
When fiat money is not trusted, the banks are not trusted, and there is a negative return on government bonds, where to go? Unsurprisingly, considering their country’s historically bad experience with its currency, a 2016 survey found that 42 percent of Germans trust gold more than they do traditional money. This leads to the world’s oldest safe investment – gold. German flight to gold has continued to become more rapid. Spot gold prices increased approximately 14% in 2017.
Deutsche Boerse said its Xentra-Gold notes, which are backed by physical gold, increased almost 50 percent in 2017. Demand for gold increased to a record 175.04 tons at the end of 2017, which was a substantial increase over the 117.59 tons in 2016. The total amount of assets invested in Xetra-Gold are worth 6.1 billion euros ($7.3 billion).
Individual German investors have followed the major institutional investors into gold. Central bankers have also began searching for more of the precious yellow metal. In one of the largest and most expensive operations of its kind, Germany’s central bank repatriated 674 metric tons of Cold War-era gold from New York and Paris Today the Germany has the second largest gold reserves in the world, following the U.S. Federal Reserve.
The World Gold Council (WGC) cited a survey which showed that a significant 59% of Germans agreed “gold will never lose its value in the long-term.” This is very good news for gold investors.