'Gold to Go' Vending Machines Hit Germany: Time for a Correction?

By Eric Roseman

Germans will soon be able to buy gold in vending machines across the country the same way most people purchase a chocolate bar or a soda. That’s not the sort of bullish development that’s conducive to new highs for the gold market – at least not for now.

Germans, however, don’t trust paper money, and they’ve got a long-term relationship with gold going back to the collapse of the economy under the Weimar Republic in the 1920s. During that decade, hyperinflation crippled the German economy – compounded by expensive and unrealistic war reparations dictated by the Treaty of Versailles.

In addition to plunging jewelry demand since last fall in India, the latest news out of Germany to install “Gold to Go” vending machines casts a dark cloud on the short-term trend for the yellow metal.

Though I remain an unfettered bull, too many people are coming aboard for the ride lately as inflation fears rise, governments struggle to auction their debt financing and gold stocks skyrocket since October.

When too many investors join the same trade, the cliff isn’t far away. That’s exactly what’s happening now in the gold market as investors obsess with inflation fears.

Gold and the “D” Word

The transition from a protracted cycle of debt destruction (since late 2007) to a period of rapidly rising inflation won’t happen overnight…

Deflation has already engulfed the economy with most companies reducing pricing, cutting employment and domestic consumption still tepid at best. The big picture remains a banking system that’s largely insolvent and still unwilling to lend amid a glut of toxic assets still sitting on their balance sheets. It’s a big mistake to believe deflation has left town this quickly.

In Germany, “Gold to Go” is a new project whereby vending machines will be installed across 500 locations, including train stations. Investors can purchase small increments of gold the same way they purchase a CD or an iPod. In Frankfurt airport, a dispenser now sells 1 gram gold wafers starting at EUR 30 ($42).

I’ll be traveling through Frankfurt in two weeks and plan on buying a few grams along with my favorite German Ritter chocolate bar. Talk about convenient!

Gold, like most commodities, has already posted big gains since early March. Consequently, the dollar has been blasted and is now oversold. Combined with the traditional summer doldrums for commodities the odds favor a correction for raw materials, including gold. This view is consistent with deflation fears returning this summer following a big stock market rally off the March 9 lows and a bludgeoned Treasury bond market.

Gold May Face a Short-Term Correction…But the Big Picture is Clear:

A decline in gold prices should be viewed as another opportunity to accumulate the metal. This bull market is soon entering its final phase whereby the gains will be enormous – probably north of $2,000 an ounce. But for now, gold is too popular and needs to correct lower.

When entrepreneurs are selling gold in vending machines, it’s time for a pause.

Comments

[yellowhoard:]

Go to your local coin shop and you'll still see more people selling gold than buying.

I'd imagine that the queues to use these machines would be a better barometer than their mere existance.

Jun 19 08:27 AM

[Carlos Lam:]

yellowhoard is correct. Still too many signs out there at shops that say "We buy gold!" right now. The first sign that a bubble is forming will be when I no longer see all those signs.

Jun 19 10:14 AM

[DONE_SONZ:]

I might be worried if the commercials were saying they were selling gold,not buying.

Jun 19 11:33 AM

[Roger Knights:]

I see these little gold wafers as making up for the decline in the gold-jewelry market in the West. People like to own little bits of gold, but the fashion is just changing from one form of trinket to another. I don't see these wafers as indicative of speculative excess--what speculator would pay a 30% markup? The buyers aren't acquiring them with the idea of resale in mind. Rather, they may unconsciously be buying them to see what it feels like to hold gold-as-currency. They're a straw in the wind of general sentiment.

These vending machines may be the first step toward a parallel, private, gold-based currency (once the markup comes down). They are "gold sprouts," in conjunction with digital gold based on gold ETFs, and an electronic payments system piggybacked on PayPal.

Jun 19 05:08 PM

[Philly Jim:]

I wonder what gold will be worth when the entire world is using a single currency by 2050.

Jun 19 09:26 PM

[cameroni:]

My feelings about the gold market mirror yours Eric. I do think Gold is set for another decline just short of 1000 again. I am being patient and waiting for a new entry point between 750 and 850. In particular I am seeing that there will be renewed strength in the dollar as the markets shift sideways and decline over the summer and into the fall. My best guess is the big opportunity will come early fall (September, October) by which time it will be clear more stimulus is needed to stimulate recovery.

I am not buying yet. Just waiting.

Jun 19 09:49 PM

[Steve Soden:]

Vending Machines - install them all around the World so all citizens have access to the Yellow Metal.
This will make Gold available to all when The Public gets involved in investing in Gold.
Gold Dealers are like Car Salesmen trying to rip off the public, you never know what kind of spread you'll get and these Dealers and be very seedy.

Jun 24 06:39 AM