The Global Gold Rush

In theory, gold stands out as the sole interest-free investment — a straightforward ownership concept without any interest premium. However, its value can decline when it competes with high-yield alternatives like bonds, stocks (with dividends) and time deposits. According to the capital market theory, gold prices typically drop when central bank interest rates increase.

From theory to practice: Today's reality disproves this theory. The Federal Reserve's interest rates have been raised eleven times since 2022 and are at their highest level in over twenty years, yet the price of gold is skyrocketing.

Since 2019, gold in U.S. dollars has increased 77 percent to $2,330 per ounce. Some are drawing parallels to the historic gold rush in Alaska at the end of the 19th century.

At the end of 2021, the Dutch bank ABN Amro predicted the price of gold would be $1,300 by the end of 2023 due to rising interest rates. By the end of 2022, the cost of gold was $1,870; by the end of 2023, it was $2,050.

This decoupling of interest rates and the price of gold has political reasons that have never been reflected in any theory.

1. Emerging Market Demand

Central banks are currently significantly increasing their gold reserves. In 2022, they purchased 1,081 tons, and in 2023, 1,037 tons.

Countries like Singapore, India, and Libya are boosting their gold reserves as a safeguard against economic and geopolitical developments.

Poland and the Czech Republic stand out in Europe for their robust gold purchases, driven by their concerns about military aggressor Russia.

2. China Diverges From The U.S.

Last year, China increased the gold portion of its central bank reserves to about four percent. Beijing views gold as a geostrategic security investment, aiming to reduce reliance on the United States and, consequently, on the U.S. Treasuries.

The seizure of Russian foreign exchange reserves and the intended redirection of interest from these currencies to Ukraine have prompted China's central bank to favor gold over U.S. government bonds for its foreign exchange reserves — a shift from past practices. The People's Republic of China currently possesses U.S. government bonds valued at $775 billion, showing a decreasing trend, and holds $161 billion in gold, which is on the rise.

3. Accessibility Increases

But it's not just central banks that are investing in gold. Private investors also value the precious metal. U.S. retailer Costco, for example, has been offering gold bars in its online store since August 2023. It's an unusual but telling move that shows gold appeals not only to traditional investors but also to the general public.

But you don't have to go to an online store to buy gold. Investors can also easily acquire the precious metal through gold ETFs. The investment portal justETF lists twenty gold ETFs that German investors can trade.

4. USA: The Gold Party Is Just Getting Started

China, the world's second-largest economy, recognizes the importance of diversification. However, the U.S. appears more inclined towards contemporary assets like A.I. and tech giants such as Nvidia, Apple, Meta, Alphabet, Microsoft, Amazon and Tesla, rather than traditional gold investments reminiscent of the 19th-century gold rush. Consequently, despite the surge in gold prices, U.S. gold ETF holdings have declined to levels similar to those of 2020.

Trading on the New York Commodities Exchange (COMEX) plays a crucial role in the rising price of gold. A changing of the guard is underway, with analysts noting that so-called long positions—bets on rising prices—have increased, while short positions—bets on falling prices—have decreased. This trend reflects the market's growing confidence in the value of gold.

In addition, data from the Commodity Futures Trading Commission (CFTC) shows that fund managers increased their long positions by 35 percent in comparison to March. This significant increase is helping to stabilize the high price of gold.

5. Optimistic Outlook

The inflation-adjusted price of gold remains well below historical peaks. And in diversified portfolios, gold accounts for less than five percent of total assets.

Historically, falling interest rates in gold have led to a price increase of around ten percent. In addition to geopolitical risks, Goldman Sachs' current price target of $2,700 per ounce seems plausible. This implies a potential increase of 17 percent.

In addition, the gold boom has not received much attention in America. American investors are only now beginning to participate in this trend.

Ronald-Peter Stöferle of the investment bank Incrementum AG commented on LinkedIn:

Conclusion: A stressed global economy also produces winners - gold in general and the Deutsche Bundesbank in particular. At the end of 2023, the value of the Bundesbank's gold, about 3,360 tons, was about €201 billion. That's almost eight times the amount needed for the 2025 budget. It's possible that the financially burdened members of the governing coalition may soon take a strong interest in these gold reserves.

• Marie-Agnes Strack-Zimmermann was aboard the Pioneer One yesterday and shared why she believes we need a European foreign policy.

• Deutsche Bank Shines: CEO Christian Sewing announced yesterday that the first quarter of 2024 marks the "best results since 2013."

• Gallery Weekend Berlin: Today marks the opening of the 20th edition of one of Germany’s premier contemporary art events.

Wolfgang Reitzle, former CEO of Linde AG and current multi-board member of Linde plc, Continental AG and Springer SE, expresses dissatisfaction with Germany's current government coalition and a societal climate, which do not consistently reward economic performance and technological curiosity.

According to Reitzle, today's emphasis is no longer on performance and competition but on wokeness and political wishful thinking. The drive for prosperity and growth is being replaced by a culture of austerity and 'degrowth' ideologies. At the same time, there's a growing expectation for more people to be supported by the state without contributing themselves.

Agenda 2024? In a guest column for The Pioneer, Reitzle responds to the Free Democrat’s (FDP) 12-point economic plan, which was approved on Monday by the FDP's executive committee. He agrees with the FDP's proposals in their so-called 'divorce paper,' which advocates for self-reliance, performance, competition and a free market.

He argues that the party must now follow through and, if necessary, consider exiting the coalition:

Because:

Reitzle articulates what many in the German business community believe:

Reitzle encourages Christian Lindner, the leader of the Free Democrats (FDP), to take decisive action:

Read more about Wolfgang Reitzle's specific visions for an economic turnaround in German right here.

Marie-Agnes Strack-Zimmermann, known for her bold, fearless, and authentic political style, which is a rarity in Germany, visited us aboard the Pioneer One yesterday. In a world where many politicians craft their statements with their PR agencies', she stands out with her distinct brand.

As the FDP's lead candidate for the European election and chair of the Defense Committee, she has gained a strong reputation, particularly as a staunch supporter of Ukraine. She often expresses frustration with Chancellor Olaf Scholz's hesitant support.

She is determined to see the war against Putin won, whereas Scholz’s aims to merely prevent Ukraine from losing—a distinction she emphasizes is not the same.

Last night, she explained her refusal to engage in peace negotiations. She cited multiple historical instances of Russian suppression and referenced the longstanding narrative that prioritizes avoiding a third world war above all else. Now, she asserts, it’s time to end this narrative.

Strack-Zimmermann calls for immediate and decisive limits on Putin, challenging the Chancellor's more cautious approach of promoting moderation and peace:

Once again, she justifies her opinion with history:

This weekend, the FDP party convention is set to take place—an important event as discussions about possibly leaving the governing coalition grow louder. Strack-Zimmermann dismisses these rumors:

That is why the party conference will be business as usual – emphasizing the importance of consistency and commitment.

For those interested in a deeper understanding of Marie-Agnes Strack-Zimmermann's views, a special feature interview will be available next week on The Pioneer website and app, with excerpts already accessible in today’s Pioneer Podcast. If you want to get to know more about Marie-Agnes Strack-Zimmermann: This way!

Weak Start: Chemical giant BASF generated only €17.6 billion in revenue in the first quarter, down twelve percent from last year. However, profit only dropped from €1.6 billion to €1.4 billion due to cost-saving measures.

Change in Leadership: Yesterday, Markus Kamieth succeeded Martin Brudermüller as CEO of BASF. Kamieth has been with BASF for 25 years, recently overseeing the Asia business—suggesting a potential future focus for the chemical company in that region.

Deutsche Bank Shines: CEO Christian Sewing announced the "best results since 2013" for Q1 2024:

• Net profit rose by ten percent to €1.5 billion – marking the fifteenth consecutive profitable quarter.

• Revenues increased by one percent to €7.8 billion.

• Non-interest expenses – costs not directly related to interest income – fell by three percent to €5.3 billion.

While the corporate banking sector struggled, with revenues down five percent from the same quarter last year, investment banking proved to be a profit driver. Revenues rose by 13 percent compared to the first quarter of 2023, reaching three billion euros.

Investors responded positively to the results: the stock surged by eight percent yesterday.

In the first quarter of the year, Airbus achieved a lower operating profit than analysts had anticipated. According to Bloomberg data, the adjusted operating profit before taxes and interest (Ebit) was €577 million, significantly below the expected €814 million. Revenue was €12.8 billion, nine percent higher than the same quarter last year.

Challenging Environment: The European aircraft manufacturer stated that the operating environment shows "no signs of improvement." Airbus CEO Guillaume Faury commented:

Production Increase: Airbus plans to boost the production of its wide-body A350 aircraft to twelve planes per month by 2028, capitalizing on the resurging demand for international travel. The company still expects to be able to deliver 800 aircraft across its entire product range in the full year of 2024.

Stock Declines: On the stock market, Airbus shares fell by 3.74 percent.

Art Spectacle: Today marks the launch of the 20th edition of "Gallery Weekend Berlin." 55 galleries are participating, including renowned institutions such as Hamburger Bahnhof, showcasing the works of over 100 national and international artists.

"Gallery Weekend Berlin" was founded in 2005 by a cooperative of Berlin galleries and is one of the leading events for contemporary art in Germany.

Highlights include: The Hua International Gallery, which displays the bizarre and profound sculptures of Jenkin van Zyl. And the Galerie Société, where Helen Chadwick’s solo exhibition focuses on the interplay between sexuality, identity and the body.

Seen and be seen: The weekend's art extravaganza draws to a close this Sunday at 6 PM. Until then, the city's trendy spots remain vibrant hubs of creativity and expression, offering a unique opportunity for everyone to engage with and reflect on the dynamic works on display.

Wishing you a wonderful start to your weekend. Stay informed. Stay with me.

Best wishes,