Not really "psychological warfare" - just a dodgy observation by one Roman historian (Tacitus, who mentions that the Germans have little iron), who probably never met any actual Germans and almost certainly never went to Germania - just met a few Roman soldiers who may have exaggeratedly told him that the Germans were badly equipped (which they were compared with Roman soldiers.)
The sad truth though, is that the archaeological evidence (i.e. we've found loads of iron stuff, including lots and lots of iron weapons) doesn't agree with his statement. After all, if the Germans didn't have much iron, it would seem staggering that they would throw so much of it away in bogs, as at Hjortspring. Not to mention that the Hjortspring find is generally agreed by archaeologists to be the equipment of one warband (it comes with their boat, and was presumably deposited by the victors in battle). It included several mail coats (in fact more than 1/10 of the force seems to have had a mail coat), 10 swords, and over 100 iron spearheads (almost certainly each warrior carried more than one). Many of the spearheads are massive as well, which again seems unlikely if people were particularly lacking in iron reserves. You would make them as small as possible.
This isn't really iron poor - no more so than the early middle ages really, and while it means that German warriors didn't usually have much more than a spear and shield (few of Rome's barbarian enemies did) they weren't cavemen with hardened sticks, nor significantly worse equipped than the Gauls, Britons, Dacians or other northern types.
So, sarcasm aside, the choice is really between believing archaeology (i.e. actual stuff we've actually found) or one sentence in the writings of a Roman intellectual who probably never met a German, never mind actually went there and saw things for himself, and whose ideas of what "lacking in iron" meant could be interpreted in various ways.
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