Germany’s Untapped Gold Demand May Send Prices Higher
Gold has been an important part of Germany’s history for more than a millennium. The nation has a long history that involves gold, and it is widely owned among wealthy investors in the nation.
Today, Germany has become one of the biggest holders of the precious metal, being responsible for 10% of the world’s demand each year. Germans tend to be fiscally conservative, and as a nation, it has a relatively high savings rate.
Germany is not unfamiliar with the devastating impacts of hyperinflation and as such, 2020 has caused German investments in gold to reach record levels as investors and savers look to protect themselves from the economic impact of COVID19 and trade wars.
While existing gold investors see it as one of the best assets to protect their wealth and receive returns in the long term, some factors prevent other investors from adding gold to their portfolio.
According to a report from the World Gold Council (WGC), these factors range from environmental concerns to accessibility concerns, which need to be addressed to allow the German gold market to keep growing.
The Stage is Set for Gold to Rule
Germany is the fifth biggest economy in the world when measured by GDP and the largest economy in Europe, which has allowed its citizens to have a good standard of living that also enables them to actively save and invest.
The top five types of investments chosen by Germans are savings accounts, life insurance, gold, stocks and shares, and investment funds, and the nation shows a favorable attitude toward gold over other types of commodities.
With 18% of their income destined for savings or investment, 83% of the German population is considering investing in gold with 45% already having bought some in the past. Clearly, this could be a big force in the gold market, especially if Germans opt for physical gold.
Gold has historically been the go-to asset for millions of Germans who are wary of economic instability, which has helped the yellow metal to gain an incredible amount of trust in the European nation.
Gold Trading is Easier than Ever – but Could be Better
One of the main obstacles for investors that want to buy physical gold was the logistics required. Now, the use of gold-backed Exchange Traded Commodities (ETC) has opened the doors to new investors by facilitating the acquisition and selling of gold.
Investment in these ETCs are especially attractive to cryptocurrency investors, as they are twice as likely to acquire them than the average investor. This allows them to diversify their portfolio as well as easily trade it like any other digital asset.
ETCs offer investors frictionless transactions and added liquidity to their portfolios, as well as lower transaction fees and the possibility of quick trades, which allows ETC holders to also use them as an extra tool when it comes to trading in times of high volatility.
Although not as strong as that of crypto investors, real estate, and stock investors in Germany have also shown a favorable attitude toward ETCs. However, a higher percentage of them prefer vaulted gold, which still makes an impact on the gold market.
The continued improvement of the gold acquisition process is fundamental for the German market, as the ease of purchase is the main concern that comes to mind of those considering adding gold to their portfolio.
German Investors’ Attitudes Toward Gold
German investors have a positive perception of gold with 64% of them considering a good safeguard against currency fluctuations, 61% stating that it will never lose its value in the long term, 57% trusting it more than fiat currency, and 53% feeling more secure in the long-term when owning it.
This attitude towards gold shows that it is seen as a low-risk and sound investment that has the added benefit of being tangible, which provides an extra dimension of attraction.
Unfortunately, 50% of the respondents expressed that they never really hear about gold in the media, which has proven to cause investors to miss innovations like gold-backed ETCs when looking for new ways of investment.
German investors can be divided into 4 different segments: Adventurous traders, agile strategists, cautious savers, and guided risk-takers.
Each of these groups expressed different motivations and barriers that guided their attitudes toward gold, with each of them requiring different strategies from gold suppliers to increase the size of the market.
Gold Retail Investor Segmentation
The biggest investor segment is formed by adventurous traders, which represent 34% of German investors. They are followed by agile strategists (25%), cautious savers (25%), and guided risk-takers (16%).
All of these groups reported interest in gold investment by more than 30% of their members, with the highest percentage being 39% of the adventurous traders and 32% by agile strategists. This makes Germany one of the markets with the highest amount of investors considering investing in gold without having done so in the past.
The major barrier reported by all groups was trust issues, especially for cautious savers with 38% of them worrying about buying counterfeit or fake gold, which in combination with storage concerns are a big deterrent to new investors.
Another highlight of the report is that 25% of the respondents cited “It doesn’t generate an income” and 20% said “It doesn’t give high enough long term returns” as their main concern when investing in gold.
While 2020 caused several markets to suffer from heavy losses due to the economical and political turmoil caused by the COVID19 pandemic, gold investors experienced some of the greatest returns in recent years as gold reached an all-time high in both USD and EUR terms, which is sure to have an impact on the perception of these investors.
Germany is also known for its environmental awareness, which was reflected by the 25% who expressed that gold mining damages the environment, and as such, it would be unethical for them to support it.
Unlocking Gold Demand in Germany
While Germany already is one of the most important gold markets in the world, it is clear that there still is a lot of potential demand waiting to be untapped, and addressing the different concerns from potential investors is essential to do so.
The World Gold Council is aiming to increase trust in gold by providing retailers with a set of guidelines that facilitates the trading process while providing investors with a higher degree of transparency that allows them to invest confidently.
While it is true that gold mining has historically been environmentally damaging, a framework for responsible mining that benefits the local population and diminishes the environmental impact of the activity already exists.
Raising awareness around the practice and the local regulations around it would go a long way in addressing the concerns from potential investors.
Lastly, the lack of awareness around gold needs special attention when it comes to female and younger investors, as they represent the group with the highest potential to benefit from clearer communication and transparency.
Of course, the biggest influence that may drive gold higher is problems with fiat currency, as the ECB has shown that it is more than happy to debase the European common currency.
Germans still remember the hyperinflation of the 1920s, and as the European experiment enters a new phase where cheap money will be created to support a flagging political structure, more investors from the most wealthy European nation will likely flock to the physical gold market for safety.
