Berlin – Gold is in demand in times of crisis. With the euro dropping in value and inflation an issue, many have been wondering whether it is time to reallocate their portfolios and buy gold. At the same time, gold has lost around ten percent of its value since last year: The troy ounce is currently worth around 1800 US dollars (1550 euros), compared to 2063 US dollars (approx. 1740 euros) in August 2020. The reason is that Fears of inflation were higher last year than they are now and many investors bought gold back then, which they are now selling off again. We asked experts how they currently see the role of gold.
“Gold is currently being sold more than it is bought,” says Marcel Reyers, managing partner at Finakons / Finanz Konsilium in Limburg and deputy chairman of the Financial Planning Standards Board (FPSB) Germany. Reyers points out that the stock markets are currently more attractive to many investors than the gold market and that they are therefore switching again. This is also confirmed by financial advisor Klaus Porwoll from PecuniArs in Berlin: “Investors are switching from gold to stocks and from stocks to gold.” Since the central banks currently rate inflation as temporary, demand is currently limited. At the beginning of the year, however, it was high. “According to the report of the World Gold Council, German investors alone bought more than 90 tons of gold in the first six months of 2021,” says Porwoll.
“Gold delivers neither interest nor dividends”
Precious metals expert Markus Bußler from the investor magazine The shareholder says: “If inflation goes up, it will also trigger a jump in the gold price.” Inflation expectations also play a major role here. The stronger it is, the more the gold price will rise. This is currently being cushioned by the stock markets. “At the moment, the crucial question is: did inflation come to stay, or is it a temporary phenomenon?” Is how the raw materials expert at DZ Bank in Frankfurt, Gabor Vogel, sums up the debate. The analysts from the central institute of the Volks- und Raiffeisenbanken expect this to be a temporary phenomenon. “We assume that the level of inflation will decrease and interest rates will rise somewhat,” says Vogel. According to the DZ Bank analyst, the gold price will fall to 1700 US dollars (around 1465 euros).
The topic of gold does not spark any great enthusiasm. “If so, then in the long term,” they all agree. “Gold delivers neither interest nor dividends, it is pure speculation on a price increase in the future,” says Reyers. Gold could represent a hedge. “You need a long system and also have to deal with the fact that the price goes down,” he says. From an admixture of five percent of the portfolio value, gold has a positive effect on the risk-reward ratio. “But it shouldn’t be more than ten percent,” says Vogel. Other experts also agree with this assessment.
Gold: “overrated investment”
Porwoll, on the other hand, describes gold as an “overestimated investment”. He calculated the performance and came to the conclusion that the inflation-adjusted return on gold was around 3.7 percent annually from 1975 to 2021. “In contrast, stocks were around 7.7 percent over the same period,” he says. If you want to enrich your portfolio with gold, it is best to choose a mixture of bars, coins and exchange-traded commodities or funds (ETCs or ETFs), the experts advise. Xetra-Gold is popular with them. This is ETC. The security is backed by physical gold, which buyers can also have delivered.
“Some investors would like to have bars or coins that they can show their grandchildren,” says Vogel. Those who want to buy these should stick to the big gold dealers who guarantee the quality of the goods. “You should only buy bars with a fine gold content of 99.99 percent,” says Porwoll. The advantage of physical gold and some gold papers: Gold is exempt from VAT when you buy it. In addition, capital gains are not subject to capital gains tax after the holding period of twelve months.
Alternatives to gold
According to the experts, silver can be considered an alternative to gold. “It’s cheaper than gold, but only half of it is investment metal, the other half is industrial metal,” says Bußler. For this reason, it is also subject to greater price fluctuations in the event of inflation. “The silver price should actually react more sensitively at the moment,” says Bußler, “but we are not seeing that at the moment.”
Another alternative is to invest in gold producing companies. “As an investor, I have the geological risk here, how the deposit will develop and how reliable the geological reports are,” Vogel points out. The second point he mentions is the risk of poor corporate management. In addition, there are international standards with regard to the environment and working conditions, which some companies now adhere to. These increase the costs of the company, which affects possible profits.
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