Germans are worried about inflation and they are buying gold. A recent report by Bloomberg notes that while some Americans think that the Federal Reserve will taper its bond purchase program and will hike interest rates, the Germans are still betting on inflation. They would not be wrong to do so. Shipping costs are up, food prices are trending up, the cost of goods is going up and it looks like the pandemic and its industry related effects are going to be here throughout 2021.
If you listen to Dr. Fauci you would think that we will be in the pandemic all the way until the end of 2022. Of course, that would be a bit of a stretch as pandemics of the past have lasted for two years. If the current pandemic lasts for more than two years, then, we may have to do some further digging into its origin. That would make it even more crucial to find out if it was intentionally released or if it was an accident.
The point is that it seems as if more Americans are looking ahead and thinking that COVID-19 and the Greek alphabet soup of Delta’s, Lambdas, and other variants will run their course through the end of the year and linger on into the first half of next year. If more Americans are nervous and slowly cut back on their spending, then economic growth will slow. The United States depends on the almighty consumer dollar and if consumer dollars start to decline, the economy will contract.
If economic activity declines then that lets the Federal Reserve continue with its easy monetary policy. In fact, the Federal Reserve will point to the decline in economic activity and note that it is necessary to keep its easy monetary policies going for longer. The Federal Reserve and its decisions on monetary policy have an impact on investors in the United States and abroad. On top of that, the ECB is not expected to raise rates any time soon. This is one reason why Germans are purchasing gold.
Why Germans are Purchasing Gold
The Germans are betting that due to the coronavirus and it flaring up again in different parts of the world, that it will slow down economic activity and that easy monetary policies around the world will continue. At the same time, Germans are expecting inflation to increase over the near term.
Germans are purchasing physical gold and providing more business to those that sell physical gold. The last time Germans became a significant buyer of Gold was in 2009. That is somewhat startling because the Great Financial Crisis (GFC) was the recent event (ten years ago or so) that spurred physical gold purchases.
Now, Germans are not the only one’s buying physical gold, this past year has seen a large uptick in the appetite for physical gold in Western markets. They all want to preserve their value amid the onslaught of inflation that is expected to arrive. The Germans may be a bit more cautious because of their real experiences with inflation in the past.
Many will remember tales from their parents or grandparents telling them of pushing a wheelbarrow full of German currency in the first half of the 20th century to buy bread. Sure, Germany was in a state of hyperinflation due to the Weimar Republic but if current rates of inflation continue to rise, purchasing power will decline.
Consumers in Germany do not want to see another round of declines in their purchasing power and want to be prepared for further inflation. The Germans are startled because they saw a sharp rise in inflation over the past month. It has been around decade since this large of a jump in inflation in Germany.
But inflation is not the only concern.
Enter: Negative yields and More Gold Buying
Negative yields have also affected the appetite for gold. Individuals would like to hold a robust asset like gold to defend against inflation. The issue is that a negative interest policy punishes savers. The increase in the of cost of general consumer goods, and critical aspects like gasoline, coupled with minimal low risk options to preserve value is contributing to further purchases in gold.
As noted before, central banks and institutions are also slowly picking up their gold purchases. Indeed, technology corporations like Palantir and Tesla have either purchased a substantial portion of gold or have expressed their intent to purchase gold.