How the financial crisis left a mark on the gold market

News Arnulf Hinkel, financial journalist – 27.02.2019

In 2008, the global financial crisis (GFC) caused countless US home owners to lose their homes and led to the insolvency of the American investment bank Lehman Brothers, while in Europe banks had to be rescued by the public sector and several countries were driven into a sovereign debt crisis from which they have yet to fully recover. The GFC not only had fiscal consequences in the form of stricter regulation and requirements for significantly larger capital buffers for banks, but also changed the behaviour of investors. John Reade, chief market strategist of the World Gold Council, recently examined the extent to which gold as an investment instrument has changed since 2008. 

Gold has become a mainstream asset

In the wake of the GFC, the appeal of gold as a safe haven, especially among private investors, soared. This is reflected particularly in the demand for gold bars and coins: while at the end of 2007, 36.1 tonnes of the precious metal were purchased in Europe and 16.6 tonnes in the US, turnover exploded to 293 tonnes in Europe and 114.5 tonnes in the US by 2009. In the same period, the gold price in euro rose by some 34 per cent.

Radical change of central banks' strategies worldwide

Numerous central banks responded to the financial crisis not only with a policy of quantitative easing and extremely low base rates, but also with a lasting change in their regard for gold: from 1995 to late 2008, central banks worldwide had reduced their gold reserves, in some cases by up to 663 tonnes per year. In 2009, the cumulative gold purchases of central banks still showed a small minus of 33.6 tonnes, before the purchases outweighed the sales from 2010 onwards. To date, this remains unchanged and is also due to other factors, such as a changed reserve policy. Although gold purchases by central banks today cannot quite match the 2013 record of 623.8 tonnes, they remain at a high level. In the opinion of chief market strategist Reade, this will not change in the foreseeable future.

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