Inflation-watchful Germans are charging gold

(Bloomberg) —

Many gold investors may be concerned about the prospect of the Federal Reserve curbing monetary stimulus, but the Germans are still charging.

Demand for physical precious metal in Germany, traditionally the largest buyer of coins and bars in Europe, was highest since at least the first half of 2009, data from the World Gold Council shows. While purchases in other western markets have also been strong, Germans in particular are plunging into the metal as a hedge against rising inflation – and dealers say business remains good.

“We have a long history of inflation fear in our DNA. Now inflation risk is mounting,” said Raphael Scherer, director at metal dealer Philoro Edelmetalle GmbH, whose gold sales are up 25% from what was already a strong 2020. “The outlook for precious metals is very positive.”

Germany’s love of gold has its roots in the hyperinflation seen under the Weimar Republic a century ago, which caused consumer purchasing power to collapse. Last month, the reopening of the economy propelled German inflation to its highest level in more than a decade. Negative interest rates in Europe also make non-performing assets like gold more attractive, Scherer said.

Demand for bars and coins in Germany is up 35% in the first half from the previous six months, compared to 20% in the rest of the world, data from WGC shows.

Taper worry

Still, gold prices have fallen nearly 7% since early June as the market braces for the Fed to contain its massive stimulus measures that helped the metal reach an all-time high in 2020. Traders will be watching closely this week’s Jackson Hole meeting by the central bank for clues about the timing of the winding down.

On the other side of the Atlantic, expectations for a rate hike by the European Central Bank in the coming years remain subdued. That could support demand for gold in Germany, even as world prices fall.

Gold has “always played a role among German investors,” said Alexander Zumpfe, senior trader at refinery Heraeus Metals Germany GmbH & Co. KG. “However, with the increased buying interest in recent years, it has become even more present.”

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