European investors lose passion for gold bars as crisis shield

Investors in Europe are losing their appetite for gold bars as a shield against the region’s debt woes, with even the crisis in Cyprus last month failing to reignite major buying.

Gold prices rose as high as $1,616.36 an ounce in March and broke a five-month losing streak after the Cypriot government struck a controversial bailout deal with the European Union, which threatened the assets of private bank depositors.

But investors in physical gold, which has long been seen as a haven from precisely that sort of financial market risk, remained wary of making fresh purchases.

“It’s … surprisingly disappointing,” said Afshin Nabavi, head of trading at Geneva gold dealer MKS Finance. “Demand is still there from trade accounts, but the investor interest we had a few years ago hasn’t come in.”

Gold’s weak performance so far this year – down more than 5 percent after 12 straight years of gains – has led risk-averse buyers to be more cautious, he said.

“I think the gold performance has left a bit of disappointment in a lot of people,” Nabavi said. “I guess they’ll come back in if we get a nice move on the upside, but for the time being it’s been quiet.”

European gold bar investment spiked to a record 312.8 tonnes in 2011 as the threat of a Greek exit from the euro zone and contagion to other economies spooked investors, representing more than a quarter of the global total.

The crisis took gold prices to a record $1,920.30 an ounce.

But bar hoarding fell by more than a quarter in 2012 as concerns over the region’s sovereign debt crisis abated, data from metals consultancy Thomson Reuters GFMS showed. Since then, even the financial troubles in Cyprus have failed to spark significant fresh purchases.

“We did see some (increase in demand) but probably not on the same level as we saw the demand when there were first problems with Greece,” said Sonia Hellwig, senior manager of sales and marketing at precious metals house Heraeus.


Reduced buying in Europe accounted for 81.3 tonnes of the 200 tonne drop in bar hoarding last year to 998 tonnes, with Germany, Austria and Switzerland particularly reluctant to make fresh purchases.

These more mature gold investment markets, in which bar and coin buying rose sharply during the global debt crisis, may now be saturated, dealers said.

“Certainly in Germany and in Switzerland there has been a decrease in bar demand,” Ross Norman, chief executive of bullion broker Sharps Pixley, said.

“Back in 2009 to 2011, European (gold) refiners were so busy that for some months it was almost impossible to source the stock.”

While buyers in regions such as India and the Middle East tend to be price sensitive, buying more gold as prices fall, European investors have done the opposite in recent years, dealers say. They have increased purchases as prices rise, anticipating further gains.

Dealers said demand for kilobars from high net worth individuals eased last year and that more purchases were made by less wealthy investors, who are more likely to add to their stocks slowly rather than build a portfolio.

“High net worth individuals are not really buying as they are already well stocked, and you see more smaller bars between one ounce and 250 grams going through the books,” Oliver Heuschuch, chief trader at German dealer Degussa, said.

As disruption in the euro zone fails to stop the decline in gold purchases, a fresh burst of buying looks unlikely this year.

GFMS said, while presenting its 2013 Gold Survey last week, that although bar hoarding was still elevated by historical standards, it did not expect an increase in demand this year.

“There are now fewer European investors likely to add more, as those traditionally involved in the market largely satisfied their needs,” Neil Meader, GFMS head of precious metals research, said at the time. “I would not be surprised to see a further decline.”

“The heavy dis-hoarding in Europe last year raises the question of how much more demand we can see in bar form.”