Being poor in one of the strongest economies in the world may seem like a fictitious tale, but the reality of economics says otherwise. Watchdogs have been observing Germany ever since the global Covid-19 pandemic rolled out, and rising inflation worry in Germany has been hitting consumers hard.
On one side, escalating inflation is causing consumer product prices, but on the other, it is allowing investors to use gold as a hedge. With this likely scenario being expected to last all of 2022, Germany may be on the verge of experiencing a bittersweet transition.
When Inflation Rises, The Consumers Loses Out
Inflation occurs when the general price level increases in an economy. In such a scenario, the consumers lose out. Germany, already carrying the scar of hyperinflation from the past, is edging into all-time high inflation rates for the last 30 years. Reports show that consumer price levels in Germany have shot up 3.1% in 2021. This is in light of the pandemic and the economy being opened up again after mass vaccination drives.
This has also pushed energy prices up. Higher energy bills mean that overall production costs increase. This causes a decrease in competitive pricing amongst manufacturers. Consumers are beginning to struggle with price hikes and reducing consumption of consumer products.
How Does Escalating Inflation Impact the Gold Sector in Germany?
This makes inflation in Germany a double-edged scenario. A rise in inflation in Germany has caused consumers to become cautious about daily expenditure. There have been reports which found consumers in Germany opting out of buying jewellery and electronics due to the surge in prices. Prices of gold or gold-related products have gone up from €1,500 to €1,700 per ounce within a short period.
However, there are two sides to the story. Gold products are beginning to see a price rise, but for investors, a rise in inflation means hedging. Gold Demand Trends stats show that Germans bought more gold bars and coins in 2020 than in previous years. In 2021, investment in gold has remained steady as well. Reopening the economy after the ongoing vaccine drive has helped German inflation jump higher leading to negative interest rates throughout Europe. This makes non-yielding assets like gold more appealing to investors.
In such times, demand for physical gold bullion in Germany has remained high. German investors happen to be some of the largest buyers of bullion in Europe. This current inflation has experts claiming investors are ready to buy gold as a hedge against inflation, especially with gold prices around $1,800 per ounce last year.
Conclusion
It is still unclear where the roads will eventually lead to in 2022. With a new variant of the Omricon virus rapidly spreading, Germany could find it tough to get out of its current situation. While rising inflation concerns in Germany continue to hit consumers, they also provide a long-term opportunity for investors. It is bittersweet, yet only time will tell how the powers of a stable economic giant handle such a situation.
