Gold Bullion Buying In Germany Surges On Euro Collapse Concerns
- German gold demand spikes 20% in first quarter
- Gold investment demand surges 63% as jewellery demand falls
- France, Switzerland and Austria see “double digit” rise in demand
- Fear of conflict with Russia, ‘Grexit’ and currency debasement
- Indian gold demand rises 15%
- Global gold demand marginally lower but robust - WGC
- Germany knows lessons of history and Weimar hyperinflation
Global gold demand remains robust as seen in the latest quarterly figures from the World Gold Council released yesterday. Q1, 2015 gold demand was just 1% lower year on year but was 3% higher quarter on quarter due to a surge in investment demand which was 4% higher year on year and a whopping 63% surge in investment demand quarter on quarter.
European investors increased their purchases gold during the first quarter according to the report. Increase in demand was highest in Germany while investors in France, Switzerland and Austria also showed strong interest in acquiring the precious metal, with “double digit” increases in demand.
The WGC says that German demand for gold coins and bars “spiked” by 20% in the first quarter of 2015 compared to the same period last year.
CNN reported that it is unusual that there should be such strong demand out of Germany given the strength of the economy.
Although this ignores the strong cultural affinity that Germans have with gold and the fact that they are consistently, along with the Austrians and Swiss, the largest buyers of gold in Europe. What has changed is that more German people are buying gold and they are buying larger amounts due to the various risks challenging Europe and indeed the world.
France, Switzerland and Austria all saw strong demand for gold and it is known that in Greece, demand for gold bullion storage and gold sovereigns in particular was strong too during the quarter.
The first quarter saw the exacerbation of the Greek crisis with the election of Syriza, the initiation of QE by the ECB, massive currency volatility with the breaking of the Swiss Franc peg to the Euro, the failure of Austria’s bad bank and very tense relations between the West and Russia over Ukraine.
“The first three months of 2015 represented the strongest start to a year for European gold demand since 2011” when the European sovereign debt crisis was at its peak.
Gold Demand Trends Q1 2015 - World Gold Council
Germans are very concerned about inflation, currency debasement and devaluation due to Mario Draghi’s QE program. Germany had put up strong resistance to ECB euro ‘printing’ but in the end the ECB prevailed when Germany was assured it would not be liable for less reliable government bonds bought by other central banks.
Italian banker Mario Draghi said yesterday that the quantitative program has “proven so far to be potent, more so than many observers anticipated.” At a speech to the IMF at headquarters in Washington the ex-Goldman banker said that “while we have already seen a substantial effect of our measures on asset prices and economic confidence, what ultimately matters is that we see an equivalent effect on investment, consumption and inflation.”
Draghi’s QE has not achieved any of its stated objectives. His pronouncement that it has been “potent” is therefore premature. History offers no assurances that these objectives will be met.
Indeed, even very recent history is not assuring. QE in Japan and in the U.S. has had little effect on the real economy. The primary beneficiaries, as Alan Greenspan recently pointed out, were the super-rich for whom it was a “terrific success.”
The fact that QE in the U.S. has not yet led to high inflation is not proof that it cannot happen. The Fed’s balance sheet is still bloated and we will not be in a position to judge the efficacy of the experiment until it has been fully wound down - if it ever is. Indeed, the recent string of poor economic data out of the U.S. suggests that rather than interest rate rises, the Fed may be forced to embark on QE4.