Germany Turns To Gold

“The run on gold has less to do with performance than it does with helplessness.”

So says Franz Herrmann, president of the German Association of Savers, and he makes an excellent point.  Bullion Trading LLC has seen its share of customers coming to us in moments of helplessness regarding their finances.  Now, perhaps more than ever before in recent history, the public is harboring a strong distrust against the fiat.  Even during the Great Depression, the devastation was not such a global level as today.  Now, with multiple economies proving unstable and banks having lost credibility, many are turning to gold bullion not because they are following its daily performance, but because it’s the only form of “banking” they feel is available to them.

Part of gold’s appeal is the fact that you know exactly what you’re getting with it.  You are exchanging your cash for a kilo bar.  No matter what happens that kilo bar will still be “in business.”  Ten years from now you can trade in that kilo bar and retrieve your wealth.  The exact of gold bullion may not be what it was when you first made the , but the gold will always have value and be a reliable way to secure wealth.

In theory, this is what a bank should be: a simple vault where one can store wealth and withdraw at will.  But in the last few years, banking has become more and more complicated.  For example, banks offer credit in exchange for interest at rates that are often unstable.  They can deduct fees from your account or even freeze your account whenever they decide to.  Worst of all, they are corporate businesses that can go under like any other corporation.  Depositing in a bank is no longer the equivalent of storing something in a vault; it’s more like making an investment in something that can easily yield a loss at any time.  Bank politics have earned the public’s distrust.

This lack of faith is especially evident in Germany where gold has been steadily on the rise throughout the euro crisis.  Herrmann’s case is interesting in that he realized that his attempt at saving was actually causing him to lose money!  His account’s interest earnings were being eaten up by , and the fear of currency devaluation made him realize it was too risky to keep his wealth in its current fiat-form.  Other forms of “wealth preservation” such as bonds and life insurance were no longer providing reliable returns.  Trying to save money through a bank has become, as Herrmann labeled it, “state-sanctioned robbery.”  This led him to start the Germans Association of Savers, which specializes in gold coins, and today includes a staff of over a hundred employees.

In the present situation Germans are turning away from banks and towards other forms of investments, such as art, vintage cars, and real estate.  Art can be considered a lucrative investment in that a painting is an item that is never consumed; it is merely hung on one’s wall and its worth could potentially increase over time as it ages and the reputation of its artist possibly expands.  One German car-dealer, Diethrich-Gothard Gross, has capitalized on this investment craze by manufacturing expensive cars to be purchased only as investments and not for actual usage.  Imagine purchasing a car worth half-a-million dollars only to never once use or even register it, but just as an investment to hopefully return one day for a profit.  Yet in the current crisis with inflation believed to rise by as high as 6% in the next few years; even luxury purchases such as these are unreliable.

Fortunately for Germany, the nation does have one reliable stock: the St. Pauli soccer club in Hamburg, which has been a thriving business since 1910 and survived multiple depressions.  In recent weeks, approximately five thousand fans have purchased $7.7 million’s worth in stocks of the club.  Sadly, the rest of the world does not have such a reliable national to invest in, and so for many of us, the stock market is, just like a bank account, another shaky investment and unreliable way to preserve wealth.  Gold bullion is the only item that remains “crisis-proof.”

Harttmann’s foresight has served him well and today he has remained afloat by turning to gold bullion, arguably the only secure investment there is.  Yet, imagine a future of almost no banking institutions or stock markets, with private ownership of gold having become the dominant form of storing wealth.  Will that be a good thing, and will a nation prosper under such a radically altered economy?  Will governments react well to the knowledge that their citizens do not wish to use their state-sanctioned currency but rather a non-sanctioned physical metal as their form of finance?  Bullion Trading LLC cannot really give a definite answer, simply because we are entering an economic period unprecedented in history.  However, if any item of value has a proven track record lasting millennia, it is definitely gold, and as Germans are discovering, for the present it remains the single strongest safeguard against poverty.