T
almost three years than a conflict has been brewing in Europe since February 2022 that no one thought possible: Russia attacks the sovereign neighbouring country of Ukraine, and we find ourselves once again in times that seemed to belong to the past for a long time.
The horror is great worldwide, and the economic markets are also reacting sensitively and with their usual reflexes. For example, with the consideration of whether gold should also currently be regarded as a crisis currency?
The answer to this question is clearly in the affirmative, because gold has proven itself in every crisis so far. The reasons for this are multi-layered and permanently valid – they are therefore not subject to trends or fashions, but are permanent.
That is why gold attracts people especially in times of crisis. The price regularly climbed to highs when the worst was expected, even as early as 1979 when the Soviet Union invaded Afghanistan. Crises in the financial and stock markets also drive gold demand, for example during the euro crisis in 2011 and the Corona crash in 2020. And because the current world situation is worrying investors alike, some are once again turning to the supposedly safe haven of gold with the hope of defying price slumps on the stock market.
Even states rely on gold to stabilise their currencies. The German Bundesbank stores almost 3,400 tonnes of the precious metal. However, most of the gold in Germany is privately owned: more than 9,000 tonnes belong to private individuals.
With these quantities, it is all the more astonishing that all the gold currently mined on earth corresponds to a cube with an edge length of only about 20 metres, which is all it is. This means that gold is a scarce commodity and cannot be produced at will like our paper money, which the central banks ECB and FED print as if there were no tomorrow. The result of this policy can currently be seen in the high inflation rate.
Especially in times of high inflation, gold has always proven to be a desirable investment. Another big plus is that gold has a low correlation to other forms of investment. If the prices of bonds or shares fall, the price of gold often remains the same or even rises. Thus, the precious metal hedges an asset against fluctuations in value.
No wonder, then, that gold still enjoys a high reputation today and is used as a store of value and means of payment all over the world. Nowadays, gold also retains its status for another reason: paper currencies have lost value in the past, but gold has remained stable. Since 1971, the world’s oldest currency is no longer pegged to the dollar; it is considered a freely tradable currency. The US government deregulated the price of gold. Since then, the world has been flooded with the worthless “fiat money”, which is also a reason for the worldwide inflation. But of course, no central bank in the world can simply reprint gold the way it can with banknotes.
In the long term, gold has always been a good protection against inflation. However, we must also note that despite all the crises, the gold price is not going through the roof as much as expected by many investors who are asking themselves, in view of the foreign and domestic political events, “what else is there to come?” and hoping for an even higher price gain. On the contrary, it looks like the gold price has even lost around 10 per cent in the US dollar since 01 January 2022 (as of 27 September 2022). The reason for this is the strengthening of the US dollar exchange rate – since gold is mainly quoted in US dollars, investing in gold has become very expensive for investors outside the US currency. In addition, interest rates are rising and investors are increasingly moving back into bonds. If one invested in gold with the euro currency, the gain this year was around plus 6 per cent.
It is interesting that institutional investors mainly buy gold ETFs (Exchange Trade Funds), while private investors mostly prefer physical gold. Here, the question of denomination and safekeeping often arises. On this subject, I can only advise preferring the smallest possible denominations and also keeping the gold outside banks. If, for example, there is a bank crash, the banks will be closed and you will no longer be able to access your own safe deposit box. I therefore advise you to keep your gold directly with Degussa or to consider private custody options, whereby the precious metal should account for 5-10 percent of your portfolio.
In conclusion, it can be said that gold is a recommendable form of investment even or especially in times of crisis, if the aspects described are taken into account.
