Germans Go For The Gold

Last Updated May 16, 2010 10:42 AM EDT

Perhaps due to fears of inflation to come from the $1 trillion bailout of Greece, or perhaps due to the memory of hyperinflation in the 1920s, Germans are buying large amounts of gold bullion and coins. Investors from other corners are joining in, sending gold up 12 percent this year to record highs. But the signs of an expected extreme inflation aren't really apparent in the real economy -- yet.

Saturday's Financial Times includes a comprehensive report on recent investing trends in gold:

The telephone has not stopped ringing at the Rand refinery in South Africa this week.
Panicking German dealers and banks have been desperate to get their hands on krugerrands, the world's most popular gold coin.
The frenzy pushed gold prices to a nominal high of $1,248.95 a troy ounce on Friday while the euro price surged through €1,000 an ounce for the first time. Adjusted for inflation, however, gold prices are still a long way from their all-time high above $2,300 an ounce in 1980.
Although coins account for a small part of the market, they are one of the best indicators of investor sentiment towards the precious metal. And right now gold is in massive demand from investors who see it as the ultimate haven at a time of market turmoil and as one of the best hedges against a possible resurgence of inflation.

The FT also has a great graphic on the gold price, and demand for gold coins.

Investment demand for gold is odd, and hard to figure. The largest buyers are central banks; it's the foundation of their asset base, and seen as an asset of last resort for the lenders of last resort, in the event things go wrong in the world financial system. A while ago I covered the buying and selling of an enormous amount of gold by the Chinese central bank.

India buys a lot of gold in jewelry form, especially at this time of year, in an established ritual of personal adornment and saving. But these days the Indians are laying out, reports Domain-b:

India's gold imports could fall for the third straight year in 2010.
Traders expect to see the first sign of the weakening demand during Akshay Tritiya, the Hindu festival which is considered a good time to buy jewellery and coins. Demand for gold is usually high during the festival.
But this time around far from buying gold people seem to be selling according to Suresh Hundia, president of the Bombay Bullion Association in Mumbai.
According to traders many Indians are buying smaller quantities or recycling old jewellery while those who can afford to spend more may wait for stabilisation of prices before they choose to buy again.
But back to the Germans. Apparently the TV news is running old footage of people pushing wheelbarrows full of paper money to the bakery. Buying gold is popular enough that you can get it 24/7, from vending machines.

Other signs of expected inflation, ones that have arguably more mainstream viewpoints, aren't as dire. For one thing, interest rates in Germany aren't very high -- 1.65 percent for the five-year Bund, and 2.86 for the 10-year. That compares to 2.16 percent and 3.45 percent for U.S. Treasuries.

Last, my personal favorite indicator of end-of-days thinking -- this report has been on the shelf for a few months, but demand for tuna fish has been weak lately, reports the online aquatic fish database Aquafind:

Recession impacts US tuna market
Canned fish is not immune to the effects of the recession. US orders for canned tuna products from the Philippines have slowed significantly; export from the Philippines dropped 12% in the first nine months of 2009. Ecuador's export of tuna pouches to the US market dropped by 25% in the January to September 2009 period compared with the same period a year earlier.
Tuna catches are expected to stay relatively low in coming months, which should result in higher tuna prices on the world market. Consequently, canned tuna prices are likely to go up in the near future.
So survivalist supplies prices may be up, but so far not for crying-in-the-streets reasons.