German investors who are concerned about inflation are still interested in gold
Acceleration of the local coronavirus vaccine programme and concomitant slowdown of the third wave of coronavirus in the country, boosted Investors’ confidence in Germany. However, while hope for an economic recovery is high, German investors who are concerned about inflation, have an increasing fear about rising prices.
According to Google search results in Germany, the word inflation which had an upward trend since October 2020, increased in February after the Eurozone annual headline CPI was reported to have jumped to an 11-month high of 0.9 percent. Also, based on the statements from both local and European central bankers fanning the flames of inflation forecasts, gold has become a hot topic among investors.
Germans purchased significantly more gold bars and coins in 2020 than in any prior year, according to the World Gold Council’s Gold Demand Trends data. And, so far in 2021, they have continued to invest at a rate that well above the historical average, even when compared to the level reached during and after the Global Financial Crisis.
Source: Bloomberg, ZEW
Similarly, investment in gold ETPs held up well in Q1. In comparison to the large withdrawals from funds listed in the United States or elsewhere in Europe, German funds registered only moderate losses and have had consistent – albeit small – inflows since early April. German ETPs presently have €18.4 billion in AUM, second only to the United Kingdom in Europe, and are near to their peak of €21.8 billion in July 2020.
German investors regard gold as a form of inflation protection. According to a comprehensive 2019 consumer research survey, 64 percent of German retail investors believe gold is a suitable hedge against inflation/currency fluctuations, and 61 percent believe it will never lose its value in the long run.
Almost half of gold bar or coin owners stated that the main purpose of their investment was to protect their wealth. Similarly, real estate/property was linked to wealth protection. Savings accounts, on the other hand, were even more likely to be perceived as serving this purpose, as three out of five investors stated this was the main purpose of their savings. While negative interest rates continue to affect German savings, investors may continue to invest in gold and real estate rather than see their savings deteriorate.
Source: Hall & Partners, World Gold Council
Addition to these findings, the results of a study commissioned by Reisebank, indicated that “value preservation” and “inflation protection” were two of the main reasons German investors mentioned for willing to keep their gold investments from the previous two years.
According to a recent German study, conducted in November 2020, 40% of retail investors who had bought gold in the past stated they were likely to purchase more in the coming 12 months as a direct result of the coronavirus outbreak. Remarkably, the intention to invest was strongest among Gen Z and Millennial investors, correlating with above mentioned Reisebank’s findings, that more young adults (18-26 years old) purchased gold during the pandemic than older respondents (23 percent v 16 percent).
It is undeniable that Germany’s increasing inflation is preying on investors’ minds, whether or not it is a temporary phenomenon. And that tends to go hand in hand with keeping gold appealing. While 2020 set a high standard that will be difficult to match, German investment is expected to remain high for at least the rest of this year.