Promises, Chances, Hurdles and Roadblocks: the Current State of the Physical Investment Market in Europe Wolfgang Wrzesniok-Roßbach Chief Executive Officer Degussa Goldhandel GmbH
Germany is not only World Champion in Football Brazil, 2014
but also World Champion in Gold Demand. Germany had the biggest gold demand per capita in 2016. Source: World Gold Council
The German Investment Market A brief History Between 1995 and 2001 demand in Germany was very low and at times there was net selling. In the early 2000s a number of smaller banks even quit the physical precious metals business. The turn-around started in 2001, when September 11 and the following wars created a feeling of large uncertainty amongst Germans. As a result of growing demand, independent physical traders and later ETCs, issued by stock ex - changes in Frankfurt and Stuttgart emerged and in the last 10 years German investment market boomed. By 2009 the German gold market had become one of the world s most important. Annual bar and coin demand quadrupled from 36 t in 2007 to 134 t in 2009. ETC market grew strongly from zero in 2007 to 36 t in 2009 and reaching new all time highs in summer 2017. 4
Investment Demand in Germany Adding up over the Years 300 250 200 150 100 50 0 87 127 97 160 62 110 62 117 48 102 50 46 120 122 122 t nearly 4 Billion Euro 2010 2011 2012 2013 2014 2015 2016 1st Half Year 2017 21 44 Private investors in Germany own 8672 tons of Gold. Half of it (4700 tons) in bars and coins, nearly 4000 tons are held in form of jewelry. Three quarters of adult Germans thus own gold in form of jewels, bars coins or gold related securities. In average, every German over 18 years holds 69 grams of gold in bars or coins. Germany Switzerland Source: GFMS/Degussa Research 5
The German Investment Market in Figures and Trends 57 % of bar and coin investors want to protect their wealth. 28 % are (also) looking for long-term returns. Investors are not only the wealthy and middle aged men, but also retail buyers with lower incomes and younger people. And 40% of our clients are women. Southern Germany has a stronger gold demand than the north, partly due to higher incomes. Currently buyers are extremely price-sensitive, only considerably lower prices will lead to much higher demand again. This is different in moments of an acute crisis. Source: World Gold Council 6
The Structure of the German Gold Market Most banks still offer physical precious metals business to their clients. Then there are a up to five precious metals trading houses with a bigger branch network as well as an online activity. Main examples here are pro aurum (founded in 2003) and Degussa (founded in 2010 with now 15 locations). There are between 150 and 200 online shops offering physical precious metals, many of them with extremely small turnover numbers. The purchase side (between 60 and 70 tons of scrap gold are currently collected annually) is even more fragmented: Thousands of small scrap gold buyers and jewelers offer that service. Source: World Gold Council 7
The German Trauma: Or why do Germans believe so much in Gold? The 20th century had been an extremely volatile one for Germans: 100 year old man living in Leipzig: Has seen 8 currencies coming and going, some without any value and traces Expulsion of 12 million Germans (one in seven) after WW2 from the Eastern Provinces with nothing left but the clothes they were wearing, accompanied by a loss of 25% of the country s territory with all property on it. For the following almost 50 years Germany was the front state of the cold war in the Western Hemisphere. A Bundesbank that has always been vigorously defending its gold reserves against any desire of politicians, thus raising the gold s image as last resort. A deep distrust of Germans towards equity markets: only 6% own equity. Source: World Gold Council 8
What are the current Drivers on the German Gold Market? Global politics: US policy, North Korea, Middle East Influence of the Brexit and the future of the European Union Terrorist threats Immigration into Germany Consequences of the German elections ( Jamaica-coalition?) Financial aspects: A possibly endless zero interest environment as a result of the financial crisis in various European countries General risks to the Euro Global debt monster (besides Europe: US, China) 9
Which are the most popular Investment Products? Not too big, not too small. Quite often a mixture of bars and coins. A little bit of silver in the pocket does not do any harm The most popular products among Degussa s investment customers are: Gold bars (65% market share): 1 oz; 100 und 250g (by value1kg) Gold coins (35% market share): Krugerrand Silver bars ( 45% market share): 100 und 1.000g Silver Coins (55% market share): Maple Leaf (margin tax), Ark Noah 10
From global to local (European) - Worldwide Investment Demand 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 357 397 419 442 875 786 1,214 1,521 1,289 1,654 1,002 1,012 1,029 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1st Half 2017 493 Worldwide Bar and Coin Demand in t Source: Metals Focus, World Gold Council, Total Bar and Coin Demand 11
Worldwide Investment Demand by countries Germany has the third largest investment demand worldwide. Europe is the largest market for physical gold. 300 285 250 200 150 100 50 0 210 124 124 162 67 122 44 93 19 70 37.5 46 43 21 21 29 19 21 20 6 The demand in the German speaking countries in 2016 of approx. 170 Tonnes corresponding to 80 % of the total European demand. China Europe total India Germany USA Thailand Switzerland Vietnam Turkey Indonesia Japan Bar and Coin demand in 2016 (in t) 1. Half 2017 Source: World Gold Council / for Germany: Degussa Research 12
Investment Demand: The European Top 5 2016 1st Half 2017 1 Germany 122 t 1 Germany 44 t 2 Switzerland 46 t 2 Switzerland 21 t 3 Turkey 29 t 3 Turkey 19 t 4 United Kingdom 19 t 4 United Kingdom 11 t 5 Belgium 17 t 5 Belgium 8 t 13
Why is the Demand so different in the individual European Markets? Cultural differences in the attitude towards gold in the various countries. Existing long-term holdings in family hands make new investments in some countries less necessary. In a number of countries more difficult accessibility due to the local market characteristics. Different tax regime (i.e. VAT, capital gains tax, sales tax) in different countries. Hurdles for cash payment (in many countries a gold purchase against cash is made relatively difficult). 14
In a Nutshell: Degussa Goldhandel GmbH Degussa Goldhandel GmbH is a precious metals trading company founded in 2010. A German industrial family revived the well known Degussa brandby acquiring it from chemical company Evonik Group. The headquarter is located in Frankfurt am Main, Germany. Degussa Goldhandel Group is the largest physical precious metals trading company in Europe. 15
In a Nutshell: Degussa Goldhandel GmbH The pillars of our business: Investment Bars and Coins Storage / Safety Deposit Boxes Numismatics Precious metals scrap Gold gifts Trading of industrial precious metals Precious metals refining Semi-finished products for thr jewelry market 16
At the End, coming back to the Beginning
Thank you for your attention. 18