Germany’s Relationship With Gold: A Historical Overview of a Century

When scanning the latest gold industry news headlines, names like China and India likely stand out the most. Such nations have deep cultural ties with the shiny precious metal, consistently buying and using gold in bulk for festive celebrations, investment purposes, and more.

With that being said, numerous Eastern nations have much quieter love affairs with the precious metal as well. Understanding Germany’s 100-year-long relationship with gold can help traders better understand how demand and reserve trends may move in the coming months or years.

Germany’s hyperinflation crisis ended around a century ago. Now, Germany has spent the last 100 years generating its reserves to become the second-largest gold holder in the world.

Germany’s history with gold began in 1923 when the nation was still recovering from the aftermath of World War I. At this time, the euro had not yet been introduced, so Germany used the German mark for trade, which was experiencing extreme inflation levels due to the nation’s economic turmoil from the war. The hyperinflation hit so hard that, eventually, it required one trillion mark to equal the original value of one.

At this point, citizens had to carry wheelbarrows full of currency just to buy a single loaf of bread. Clearly, Germany needed a new solution.

In 1923, Germany appointed Gustav Stresemann as Chancellor. By November, the nation introduced a new currency that followed the value of the gold mark. The purpose of the Rentenmark was to stabilize the nation’s economy and restore faith in Germany’s currency.

At the time, the Rentenmark was not backed by enough gold reserves to make this feat achievable on a nationwide scale. The currency also wasn’t convertible to gold for citizens. Instead, the Rentenmark simply mirrored the gold mark by adjusting its supply levels to maintain its value.

Essentially, Germany returned to the gold standard when all else failed. This fleet to security sent a clear statement to other nations going through similar economic crises at the time. Poland, Hungary, and Austria all instated similar policies between the years 1923 and 1925, adopting various forms of gold standards to combat the raging levels of hyperinflation across different points of the globe.

As we fast-forward to present-day Germany, it’s clear that the nation continued deep-rooted ties with the precious metal that saved it from a full economic collapse. Gold remains just as robust and celebrated in Germany now as it was in 1923.

Germany’s central bank, the Deutsche Bundesbank, has spent the last 100 years carefully building its gold reserves as a security strategy. The central bank now sits in second place for holding the most gold in the world, just behind the U.S. Federal Reserve.

In recent years, Germany has become a quiet gold buyer, purchasing 674 tons of gold from Paris and New York between 2013 and 2017. Beyond Germany’s central bank gold buying, though, are the impressive gold demand rates from its population. German buyers account for one in every eight ounces of gold coin and bullion bar investment demand across the entire globe.

While Germany may have around 85% of America’s population size, its appetite for gold defeats that of U.S. buyers. German citizens understand the value of gold and its ability to hedge against inflation or store wealth during economic turmoil.

Between private gold holdings in the nation and the Deutsche Bundesbank reserves, Germany currently carries 7% of all the world’s above-ground gold reserves.

Over the past decade, Germany’s gold coin and small bullion demand levels fell second only to China and India, the two top retail gold buyers in the world. Germany’s current appetite for gold may not be as aggressive as nations like China and India, with cultural celebrations revolving around the precious metal, but Germany still remains near the top of the ranks for the most gold carried in the world.

As we look forward to the rest of 2023 and beyond, predicting how Germany’s gold-buying trends will play out is a bit complex. Gold coin and small-bar investments dropped during the first half of the year, likely due to high interest rates increasing the opportunity costs of investing in gold, though analysts expect the nation to continue protecting its long-built reserve status.

In 2020, German citizens bought more gold coins and small-bar investments than any year on record as the world faced the COVID-19 pandemic. Numerous surveys showed that citizens were buying gold to protect their savings and hedge against inflation. When similar periods of economic turmoil occur, we can expect Germany’s investment demand to rise again.

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