WGC: Germany's golden decade

The German gold market has experienced incredible growth over the last decade. Faced with financial crises and changes in monetary policy, Germans have decided to protect their assets in the most proven way, namely by investing in gold. Last year, this market absorbed over €6 billion, and there is still room for further growth, according to today's report by the World Gold Council (WGC).

Before 2008, the German gold market was relatively small. Between 1995 and 2007, demand for gold in Germany averaged around 17 tons, but in 2009, investors bought as much as 134 tons of the precious metal. Since then, the German gold market has continued to thrive, with annual demand not falling below 100 tons.

Where does this love of gold come from, and why has the last decade seen such a surge in purchases? The starting point was certainly the global financial crisis, although Germans were concerned not only about the effects of the collapse of Lehman Brothers, but also about their own regional banks. Failing banks were bailed out at the expense of taxpayers, and although financial institutions managed to recover, the countries that financed the bailouts began to experience problems themselves. The European Central Bank, the European Commission, and the International Monetary Fund decided to rescue Greece, Ireland, Portugal, Spain, and Cyprus, which have been trying to restore their economies to a state of relative equilibrium ever since.

At the same time, European monetary policy was significantly loosened. In 2012, Mario Draghi decided to "save the euro at all costs" by lowering interest rates and pumping empty money into the market. Some banks even began charging fees for deposits held in accounts.

Meanwhile, German investors have seen their money become worthless too many times to sit idly by and watch. They remember not only the dramatic hyperinflation of the 1920s, but also the fact that Germany has had as many as eight different currencies in the last century. This best illustrates that the value of paper money is only contractual and that only gold has always proven to be an effective store of value over time.

Seeing the demand for safe investments, German entrepreneurs quickly filled the gap in the market that arose when, in the early 2000s, many banks stopped selling gold coins and bars. The market developed rapidly, with online sales occupying a special place.

According to last year's survey, cited in the WGC report, 59% of Germans believe that gold will never lose its value in the long term, and 48% admitted that owning gold gives them a sense of security. When asked why they buy physical gold in the form of bullion coins and bars, 57% of respondents said they do so to protect their assets. Interestingly, in 2016, the amount of gold per capita was higher than in such gold powerhouses as China and India.

Over the past decade, the profile of gold buyers has also changed. Until recently, it was mainly the wealthiest who decided to purchase the precious metal, but today they are joined by investors with lower incomes, for whom gold is among the top three most popular assets.

It is also worth noting that interest in gold among Germans has not declined at all with the improvement in the economic situation. In economic matters, public sentiment is at a record high today, and gold is still in demand. One in four Germans regularly buys gold, and 23% do so with retirement in mind.

Although the Polish gold market is still only a fraction of that across our western border, and Polish investors still have much slimmer wallets, the German example shows that we have enormous room for growth ahead of us.

MW