Investors think gold is not the safe haven it was twenty years ago, says the CEO of Degussa gold trading in an interview with finews.asia.
Mr. Habluetzel, the western sanctions against Russia now include gold trading and the Russian central bank's gold reserves. What does that mean for the market?
Russia physically delivers about 10 percent of the worldwide market in gold. That has been taken out of the market now. It is not a big thing for Degussa even if we feel the shortage. It is a bigger problem for the refineries. Physical gold can also be lent out against interest. That rate has now doubled. That has caused stress in the market.
Switzerland is one of the largest hubs for importing and exporting gold. How important is Russian gold for the refineries?
The lack of gold should not be anything decisive for Swiss refineries given that they have a larger problem. Russia is a very strong partner with regard to palladium.
The gold industry's supply chain has been frequently criticized. The World Gold Council and the London Bullion Market Association have started an integrity program based on blockchain technology. It should help market players establish whether gold bars are genuine. What is exactly behind the program?
Physical trading of international gold depends on trust. The «Gold Bar Integrity Programme», which is currently undergoing testing, registers the precious metal's place of origin, a chain of custody, and transaction history. Degussa in Switzerland led the way with regard to the program here and is working very closely with Axedras, a Swiss company.
«Institutions have not been increasing their stocks much because of Russia.»
The fundamental idea behind the program is that you can't make a second gold bar from one that already exists. The program will increase investor confidence that their gold is genuine and has been produced in a responsible and sustainable manner and that it doesn't come from dubious sources.
IF if buy a gold bar in the future, will my name appear on the blockchain?
No, the system will keep the name of the private buyer anonymous. The program is limited to numbered bars. It won't include smaller bars that don't have numbers, such as 10 and 50-gram bars.
Have Swiss investors been buying physical gold because of the Ukraine War?
The demand for physical gold has been high since the start of the pandemic in spring 2020. It tailed off at the end of last year when things started to normalize. The Ukraine war has significantly increased interest. But it is mostly private investors that are buying gold. Institutions have not been increasing their stocks much because of Russia. They have been invested in the metal for a long time.
Gold's price is not really going up despite high inflation and the Ukraine War. It has been moving sidewards since last summer. Why is it not reacting more?
Larger clients have been selling gold for the last three or four months. Many investors think gold is not the safe haven it was twenty years ago. Significant amounts of capital are flowing into crypto at the expense of other assets. Market participants are investing more in fixed income as a result of the increasingly strict monetary policy. All of these factors are keeping the gold price down.
The U.S. Federal Reserve wants to increase interest rates strongly in 2022. Will that have a negative impact on gold prices?
The Fed foresees another six interest rate increases this year. But it is not likely as often and as strongly as thought, not least given the high levels of debt in the U.S.
«Silver could double in the long-term.»
If interest rates are pushed up too much, there is the danger that economic growth will stall. I believe that interest rates will rise much less than is currently being signaled. Over the next 12 months, I expect the gold price per ounce to remain stable at about $2,000 U.S. dollars.
Are cryptocurrencies a better hedge against inflation than gold?
Gold will continue to be a long-term hedge against inflation. But cryptocurrencies form a new investment class that is becoming increasingly accepted by institutional investors.
You recommend keeping gold in portfolios as a hedge?
Yes. The percentage of gold should depend on the market environment (risk-on or risk-off) be between 10 and 20 percent of a portfolio, depending on the age of the investor.
What should a precious metals portfolio look like? How will silver, platinum, and palladium develop?
Gold and silver will continue to form the core of a precious metals portfolio. Silver has a massive potential to catch up. Silver could double in the long term. I wouldn't recommend investments in platinum and palladium right now. Both metals are not very liquid and their prices are strongly driven by industry, rather than investment, and demand.
Andreas Habluetzel has been CEO of Swiss-based Degussa Gold Trading for ten years. It is a subsidiary of the German Degussa company. Before that, he was a currency trader for Bank Leu, Clariden Leu and Zurich Cantonal Bank.
