Inflation has been a significant source of stress for investors. Generally, the case for 'inconveniently high' German inflation seems to outweigh the case against it, at least for now. As a logical result of a risk like this, investors look for protection. While gold has always been a tested long-term inflation hedge, the short-term performance of gold is less impressive. However, this study demonstrates that gold may be an important element of an inflation-hedging portfolio.
Inflation in Germany
German "investor confidence" recently reached a 21-year high which was buoyed by an internal coronavirus vaccination program and a concurrent slowdown of the coronavirus wave. Although confidence for an economic recovery is strong, it is accompanied by increased worries of inflation among inflation-averse German investors.
Google searches with the term 'inflation' in Germany had been increasing since October last year – spiked in February when reporters remarked that the Eurozone annual CPI had leaped to its highest levels, with a 0.9% increase in 11 months.
And with statements from both local and European Central Bank stoking the fires of inflation forecasts, gold has always been a burning topic of discussion among investors. According to Gold Demand Trends information, Germans purchased more gold coins and bars in 2020 than in any other year.
In 2021, they have held an investment rate that is significantly above the historical norm, especially compared to the dizzying heights attained in the time of and after the Global Financial Crisis.
Germany's Gold Hoarding Behavior
Possibly in anticipation of inflation resulting from Greece's one trillion-dollar bailout, or perhaps in recollection of the 1920s' hyperinflation, Germans are purchasing significant quantities of gold bullions and coins. Other investors are jumping in, propelling gold to new highs and averages. However, the indicators of projected severe inflation are not yet visible in the actual economy.
While many German gold investors are concerned about the possibility of the Federal Reserve reducing monetary stimulus, they continue to accumulate.
Germany, Europe's traditional largest coin and bar customer, had the strongest demand for physical bullion in the first half of this year. While purchases in other Western countries have been robust as well, Germans, in particular, are piling into gold as a hedge against increasing inflation – and dealers report continued solid business.
Germany shares a long history of inflation dread. Now that the risk of inflation is increasing, gold sales are expectedly up 25% year on year that was already strong. As it seems. Precious metals have a very bright future.
Germany's obsession with gold dates all the way back to the Weimar Republic's century-long hyperinflation, which saw people’s purchasing power dwindle. The economic reopening last month helped Germany's inflation surge to its highest level in more than just a decade.
Bottom Line
Gold has always been a crucial part of the investment portfolios for German investors. However, with the rise in purchasing interest in recent years, it has grown much more prevalent.
