All gold, no money

03 April 2020

"Buy physical gold" is an often-heard recommendation from so-called gold experts to investors who fear a collapse of the financial system. Now we have a major crisis that threatens our very existence. And what is the physical market doing?

First of all, the attempt to buy gold physically is failing. The real shops are corona-bound and closed. So are the online shops, as the supply of gold is also reduced due to corona. Accordingly, the selling prices for gold are rising significantly. So far so good or so far a normal market behaviour.

But where all gold fans should be concerned is how to deal with the buying rates. Those who hoped to sell their now valuable gold at scarcity prices during the crisis are mistaken. Suppliers refuse to reduce the shortage of physical material even to the slightest extent and thus help demanders to acquire gold by offering attractive bid prices. For most classes, no bid prices are quoted at all.

Now one could argue that this has to do with the fact that there are staff shortages. Yes, transport capacities are also reduced. But this should not only lead to an explosion in selling prices, but should also cause a reaction in the bid prices.

So gold investors are just learning that gold shop operators are mainly concerned with selling. In a crisis, it is not safe - after this experience, it is perhaps even highly doubtful! - that a gold owner can ever reasonably turn his "treasure" back into money. So the only hope remains to exchange his gold at some point in a hyperinflation on the black market. Is this clear to all investors?

As things stand today, where no ban on gold ownership has yet been issued and no prohibitive gold taxes are levied, the ownership of paper gold with delivery entitlement (e.g. Xetra or Euwax gold) is probably still the better gold investment strategy. We are convinced that gold is needed for diversification. But the behaviour of the physical trading industry should be critically followed by investors.