World’s Largest Reinsurer Buying Gold To Counter Punishing Negative Rates
The world’s largest reinsurer, German reinsurer Munich Re is boosting its gold reserves and buying gold in the face of the punishing negative interest rates from the European Central Bank, it announced today.
As reported by Thomson Reuters this afternoon:
German reinsurer Munich Re is boosting its gold and cash reserves in the face of the punishing negative interest rates from the European Central Bank, it said on Wednesday.
The world’s largest reinsurer is far from alone in seeking alternative investment strategies to counter the near-zero or negative interest rates that reduce the income insurers require to pay out on policies.
Munich Re has held gold in its coffers for some time and recently added a cash sum in the two-digit million euros, Chief Executive Nikolaus von Bomhard told a news conference.
“We are just trying it out, but you can see how serious the situation is,” von Bomhard said.
The ECB last week cut its main interest rate to zero and dropped the rate on its deposit facility to -0.4 percent from -0.3 percent, increasing the amount banks are charged to deposit funds with the central bank.
ECB policy has caused financial market interest rates to fall, reducing the return that insurance companies can earn from investments in bonds, hurting profit and raising concerns about their ability to meet future promises to policyholders.
Munich Re is one of the largest if not the largest reinsurance companies in the world. It had total assets of €273 billion in 2014.
A small 3% allocation to gold would equate to buying gold worth €8.19 billion. At the current spot price of €1,130 per ounce that would equate to 7.2 million ounces or 225.4 tonnes of gold bullion (1 metric tonne = 32,150.7 ounces).
The news is interesting and we believe that other institutions will follow in their footsteps and diversify into gold in order to protect themselves from negative yields. We have not heard of any other non central bank institutions diversifying into gold but it stands to reason that a small percentage will follow in Munich Res footsteps.
Due to the very small size of the above ground refined, investment grade gold bullion market, the development of even a small amount of institutional buying should help put a floor under prices and indeed could propel gold prices higher.
Read Reuters article on CNBC here
Gold Prices (LBMA)
16 Mar: USD 1,233.10, EUR 1,111.79 and GBP 874.09 per ounce
15 Mar: USD 1,233.60, EUR 1,112.56 and GBP 870.71 per ounce
14 Mar: USD 1,256.55, EUR 1,130.24 and GBP 875.89 per ounce
11 Mar: USD 1,262.25, EUR 1,136.50 and GBP 883.03 per ounce
10 Mar: USD 1,247.25, EUR 1,137.04 and GBP 876.67 per ounce
Silver Prices (LBMA)
16 Mar: USD 15.29, EUR 13.78 and GBP 10.84 per ounce
15 Mar: USD 15.32, EUR 13.81 and GBP 10.82 per ounce
14 Mar: USD 15.60, EUR 14.04 and GBP 10.87 per ounce
11 Mar: USD 15.50, EUR 13.96 and GBP 10.84 per ounce
10 Mar: USD 15.27, EUR 13.92 and GBP 10.75 per ounce
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