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German Investors Buying Bullion As Safe-Haven Asset

(Kitco News) - German investors have been jumping into gold, protecting themselves against a freefalling euro and geopolitical uncertainty, according to European precious metals dealer Degussa.

Earlier this week, the company said in a press release that sales of gold bars and coins increased more than 50% in the first half of the year, compared to the first six months of 2014. Total sales equaled more than €700 million.

According to the company, one of the most popular product among German investors as been the South African Krügerrand gold coins.

Wolfgang Wrzesniok- Rossbach, CEO of Degussa, said in the company’s statement that the sales appear to be related to the growing Greece credit crisis. Last week Greece defaulted on its €1.5 billion payment to the International Monetary Fund and in a referendum held Sunday, Greek voters overwhelmingly rejected the terms of the latest bailout offer from the nation’s Creditors.

After an emergency Eurogroup summit Tuesday, Greek formally asked for more financial aid from its creditors and has until Thursday to draft a  detailed, cost-assessed plan on the economic measures it would take in exchange for loans. The Eurogroup will review the plan in another emergency meeting Sunday. There is some speculation that this could be the final deadline for Greece as they have to repay 3.5 billion to the European Central Bank by July 20.  Analysts say there is between a 50% and 70% chance that Greece will be forced out of the Eurozone. 

While Greece’s credit crisis is a major reason behind the drive into gold, Wrzesniok- Rossbach added that a falling euro was another strong motivator.

"Whilst the acute crisis in Greece is the most important driver for gold demand in Germany at the moment, other reasons have been the general weakness of the euro, which started already at the beginning of the year, as well as the zero interest-rate environment," he said in the press release. "Many customers saw the purchase of gold also as an attractive alternative to holding cash.”

The European gold market saw the biggest gains at the start of the year as gold traded to a high of €1,168.12 against the euro. Although prices have recently been trending lower, gold is still trading around €1,050, up slightly more than 6% on the year.

The euro lost considerable ground against the U.S. dollar in the first three months of 2015, after the European Central Bank announced that it would start buying government bonds in an effort to stimulate economic growth and inflation.

Although EUR/USD is well off its yearly lows, set in mid-March, the currency pair is still down more than 8% on the year.

According to currency analysts, the biggest factor behind the euro’s poor performance is interest-rate differentials. The ECB’s loose monetary policy has been a stark contrast to the Federal Reserve, which has been signaling a potential rate hike sometime this year. Currently, markets are anticipating that the Federal Reserve will hike rates in September.

Currency analysts have been extremely bearish on the euro this year, expecting widening interest-rate differentials to drive the single current to parity with the U.S. dollar.

By Neils Christensen of Kitco News; nchristensen@kitco.com
Follow Neils Christensen @neils_C

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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