German Government Escalates its War on Gold

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by Ronan Manly, BullionStar:

In the run up to the end of the year during December, a remarkable sight emerged across Germany – long lines of customers queuing up outside the country’s precious metals shops and gold dealer showrooms.

Was it seasonal gift buying by Germany’s citizens, a population well-known for its love of physical precious metals? Or perhaps the onset of panic about negative interest rates in Europe’s largest economy?

As it turns out, panic it was, but of a different type, with the long lines triggered by the realization that from 1 January 2020, new national legislation was to take effect that would dramatically reduce the threshold on anonymous buying of precious metals from the existing €10,000 limit to a far lower limit of €2000, all under the guise of money laundering prevention.

With a staggering 9,000 tonnes of gold held by the German population, 55% of which is in the form of physical gold bars and gold coins and the rest in gold jewelry, Germany’s citizens are savvy about gold and are active savers and investors in the yellow precious metal. Add to this the fact that the German bullion market is one of the most sophisticated and developed in the world, supporting an extensive set of industry participants from banks and gold refineries, to nationwide gold dealers and distributors, to smaller regional and local bullion retailers.

Panic buying  – We are being overrun

So when the German government throws up restrictions on such a fundamental right as anonymous buying of gold and other precious metals, Germany’s citizens were going to sit up and take notice and do what any rationale economic actor would do in the circumstances – buy as much gold as they can get their hands on before the 1 January deadline. Hence the queues and long lines outside the gold shops including some of Germany’s biggest gold dealers such as Degussa and Pro Aurum.

Börse Online, Germany’s leading investor magazine, summed up the situation in its 13 December article “Supply shortages at gold traders: ‘We are overrun, the queues go up into the street’“:

“Large gold traders such as Pro Aurum and Degussa are currently experiencing massive bottlenecks in gold products, and customers are literally buying their shelves empty. “We are currently being overrun,” says Raphael Scherer, managing director at Degussa Edelmetalle. “The queues go up into the street.” 

It is similar with Pro Aurum. Like Degussa, the company is one of the largest gold traders in Europe. “We are currently seeing a tripling of the normal order volume – both online and in the branches,” says Robert Hartmann from Pro Aurum”

Kerstin Botschek, Branch Manager at Degussa in Cologne, explained the situation to German newspaper Die Welt in its 23 December “Legislative change creates queues in front of gold trading houses“:

“These long lines are are based on the lowering of the cash limit. 98.5 percent of customers want to buy gold for less than 10,000 euros without registering. Few are buying jewelry any other gift.”

The situation was similar at Pro Aurum in Munich which it documented on its website:

“Many Pro Aurum employees in Munich cannot believe their eyes…the line of waiting customers extends to the on the sidewalk in front of the building. In the freezing cold, people persevere to buy physical precious metals. You take everything that is still available with you – but the product range is shrinking day by day, because the demand is simply overwhelming.”

Line of customers queuing up outside Degussa’s gold shop in Frankfurt, 24 December

Germany goes beyond the EU Directives

To understand why this is truly part of a war on gold by the German government, we must understand the background to this legislation. The European Union (EU), of which Germany is a member, regularly issues legal Directives on all manner of subjects. These directives, although they are required to be reflected in the national law of member states, don’t dictate how they should be reflected in national law, and so member states have flexibility in how they implement the directives within their national legislations. One such body of Directives are the EU Anti Money Laundering Directives, which the EU claims are to protect the financial system from being used for money laundering and terrorist financing.

In mid-November 2019, Germany’s parliament, the Bundestag, enacted a German federal government bill which implemented a European Union (EU) amendment to the fourth EU Money Laundering Directive. This amendment, known as the fifth EU Money Laundering Directive, was introduced by the EU in 2018, and then EU member states had until 10 January 2020 to reflect the changes in their national law via domestic legislation. The German Federal Council then passed the Bundestag’s act on 29 November and the law came into force on 1 January 2020.

But on this occasion, the German government in its legislation, went much further than the requirements of the latest EU Money Laundering Directive. Specifically, as regards transactions in precious metals, the new German law passed in November (a draft of which is here in pdf) lowered the threshold on where precious metals can be bought without identity checks (anonymous transactions) from €10,000 to €2,000 per transaction.

In Germany, anonymous transactions such as these are known as “Tafelgeschäfte”. Generally speaking, the German concept of “Tafelgeschäfte” can refers to any over-the-counter transaction for an investment or security that a customer can receive in physical form. This could include bearer bonds or an equity security with attached dividend coupons, as well as physical precious metals bars and coins. In these literally “over the counter” or across the counter transactions, customers do not need an account to perform the transaction, and customer identity remains anonymous, e.g. in the case of gold, the customer pays cash, and the dealer or bank hands over gold bars or coins.

But while the 2018 EU Directive said nothing whatsoever about precious metals, this did not stop the German federal government from dramatically lowering the anonymous threshold for precious metals transactions in its 2019 version of its domestic bill, a bill that it claims reflects the fifth EU Money Laundering Directive.

Long lines outside a gold shop in Stuttgart, Germany, on 30 December. Source

Its also important to note that the existing €10,000 threshold limit on anonymous precious metals transactions in Germany (Tafelgeschäfte) had only been in existence since 2017. Prior to that, the reporting threshold was €15,000. This threshold reduction from €15,000 to €10,000 was also rail-roaded through in German legislation which supposedly reflected the 2015 EU-Directive against Money Laundering and Terrorism Financing (a.k.a. the fourth EU AML-Directive). But again in that instance, while the 2015 EU Directive said nothing about precious metals, the 2017 German legislation defined a list of ‘high value goods’ including “precious metals such as gold, silver and platinum”, “gemstones” and “jewelry and watches”, deeming that:

“All goods dealers who make or receive cash payments of 10,000 euros and more (previously 15,000) will have to fulfill the obligations of the Fourth Money Laundering Directive”.

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