The new gold rush

What do the zero interest rate policy and the wedding boom have in common? Both
promotes the business of gold. The shiny precious metal is
asked for how long – whether as a Krugerrand or an engagement ring.

The gold ring for engagement is back in trend.

Dhe gold business is booming: dealers and jewelers are reporting growing demand for the precious metal. The resulting rise in gold prices affects gold as an investment product as well as the gold jewelry market. In addition, because of the rise in prices, many customers are increasingly carrying old gold to stores or to the jeweler.

“The gold price has reached a record level in euros,” says Michael Eubel, head of the precious metals business at BayernLB, which in 2019 traded over 60 tons of physical gold. The ounce is currently trading for over 1400 euros in London, the highest level since the common currency was introduced. Many professionals expect the price to continue to rise. The quotation in euros is not internationally relevant. “The world looks at the price of gold in dollars, and we’re still about $ 400 below the 2011 high when an ounce traded for about $ 1900,” says Eubel.

Chart gold 1 year

Gold EUR

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To the detailed view

The reason for the increased attractiveness of gold is obvious: “The overriding discussion is negative interest rates,” says Benjamin Summa, spokesman for the Munich gold trading company Pro Aurum. “The discussion has also reached the small savers.” Many banks and savings banks have been charging interest for larger savings for some time, now there are also some institutions that collect interest from their customers from the first euro credit.

If inflation is factored in, savers lose money even without penalty interest. Gold has always had a reputation for being a comparatively safe investment. “Before the turn of the year we were almost sold out, there were dramatic delivery bottlenecks,” says Summa.

German love

Gold has always had a particularly high priority in Germany: “Measured against its population, Germany is the country with the most gold affinity,” says BayernLB chief dealer Eubel. According to this, Germans buy around 100 tons of the shiny metal every year. In addition, the Bundesbank owns the world’s second largest gold reserves, a total of over 3,300 tons.

Jewelers are also reporting strong demand, although jewelery is not about returns and price increases. “Gold jewelry is not a financial investment, but a valuable investment,” says Joachim Dünkelmann, the managing director of the Federal Association of Jewelers. “The rising gold price does not lead to a decrease in demand, on the contrary.”

One major factor has nothing to do with the financial market: “The number of marriages is increasing,” reports Dünkelmann. According to the Federal Statistical Office, over 449,000 weddings were celebrated in Germany in 2018, 70,000 more than ten years earlier. Since 2018 same-sex marriages have been included that were not previously included in the statistics. That alone does not explain the current run on the registry offices, because in 2018 there were only just under 33,000 same-sex weddings. And many young couples not only buy wedding rings, but also increasingly engagement rings. “The application ring is back,” says Dünkelmann.

The gold market influences the jewelry market: when gold becomes more expensive, the prices for gold jewelry naturally rise with a certain delay. But the reverse is not true. “Every year around 4,300 tons of physical gold are in demand worldwide,” says BayernLB expert Eubel. “Half of that goes to the jewelry industry. Does that have an impact on the price? The clear answer: No. “

The reason: “Gold has been a highly liquid asset class on the financial market since the financial crisis at the latest,” says Eubel. Gold is mostly traded in electronic form, and as with other asset classes, there are also derivatives and funds of all kinds on the market. “The purely physical trade makes up less than one percent,” says Eubel.