Understanding Asian gold demand

IMG Auteur
Published : November 19th, 2012
566 words - Reading time : 1 - 2 minutes
( 4 votes, 4.5/5 )
Print article
  Article Comments Comment this article Rating All Articles  
0
Send
0
comment
Our Newsletter...

 

 

 

 

There is growing awareness that gold is accumulating in Asia. Indians have for a long time been the largest buyers of gold and have a tradition of giving gold as gifts at auspicious times. This gold is mostly classified as jewellery in the statistics, and it is assumed by westerners that a rising gold price will dampen demand from this source. This misunderstands the Indian market on many levels.


The reason gold is bought as jewellery is because the processing costs are very low. It is more accurately a reliable store of value, which for Indians is the real point. Furthermore, India’s experience with paper money has not been happy. Imagine a young couple who married in the mid-1960s. The bride might have been given five or six ounces of gold in the form of bangles and other jewellery items. The cost including an Indian jeweller’s mark-up in 1965 would have been about 200 rupees per ounce at pure equivalent, making a dowry of 1,200 rupees (1965 exchange rate was Rs4.76 to US$1.00). Every Diwali, wedding anniversary and birth of a child, the dutiful husband would have bought more gold if he could afford it. Some would have been passed on to their children as they got married and had families of their own.


Today the price of gold is about 95,000 rupees. As a form of savings gold has beaten every other investment our Indian couple could have made, hands down. They would now be in their sixties, and looking forward to a comfortable retirement, centred on family, children and grandchildren. Contrast this with our more sophisticated world, with our underfunded pensions falling short of what we actually need to live on. Many of us will rely on the state for a minimal pension, for which the state will heavily tax our children. And the Western equivalent of our Indian couple faces the prospect of their retirement annuity, if they have one, buying less and less as they get older.


So don’t dismiss India’s love of gold as just tradition. Indians in their investment choices have shown considerably greater wisdom than most of their Western counterparts. And it is not just Indians; there is the whole of South East Asia, and the Chinese who have much catching up to do having been banned from owning gold until only eight years ago. According to Albert Cheng of the World Gold Council, the Chinese public in that short time have now overtaken Indians as a buyer of gold. The difference between the Indians and the Chinese is the Indian government has adopted Keynes as its guru, so it hates gold, thinking its people are backward. The Chinese government instead is encouraging its population to buy more and more. Between China, India and all the other gold-loving countries in South-east Asia, there are now nearly three billion people certain in the knowledge that gold is a far better long-term store of value than any paper currency.


The other conclusion we can draw from this is that price doesn’t matter. Look what’s happened since gold peaked a year ago: Asian buying has increased all the time while Western fund managers and the media have bickered about whether gold is going up or down. But the Asians instinctively know that what is actually happening is that paper money is going down, and hard experience tells them it never goes up.

 

 

Data and Statistics for these countries : China | India | All
Gold and Silver Prices for these countries : China | India | All
<< Previous article
Rate : Average note :4.5 (4 votes)
>> Next article
FinanceAndEconomics.org is the website of Alasdair Macleod, who has a background as a stockbroker, banker and economist. Alasdair is available for seminars, speeches and interviews. Please check on Services to get further detalils.
WebsiteSubscribe to his services
Comments closed
Latest comment posted for this article
Be the first to comment
Add your comment
Top articles
Latest Comments
Top Ten Reasons I Buy Gold Silver [#7] - These Assets Come With a ...
21 Sepvictoriashores1
HI Jeff I have read your articles with a lot of interest in your feelings with the future of Gold and Silver. I'm 75 years of age and have ...
What Is the Correct Amount of Money?
20 Sepgfs543
If money is the heart of the economy, then the economies of the world are running with diseased hearts. Keynesians and other monetary intervention...
Pushback
20 SepGypsy
James, you're getting more difficult to read. As a Deplorable, I realize my under-education leaves me at a disadvantage when faced against the Mer...
Pushback
18 Sepdennyc3
If a university professor has been on the job for more than five years without venturing out into the world there's usually nothing to learn here. ...
Rude Awakening for the US in January? No, Just More Alarmist BS Fro...
18 SepDRGEORGE
The world & the US $ have been on the brink for 10 years (or more). In 2008 it nearly happened but giving the 1% a stack of money saved the day. It...
'No evidence' of gold market manipulation, CPM Group's Christian in...
15 Sepneville
Despite being a so-called GOLD website ,I have read more anti GOLD articles on kitco than on any other site. Yes chris you are absolutely corre...
Rude Awakening for the US in January? No, Just More Alarmist BS Fro...
15 SepSilverthumb2
I used to enjoy listening to Rickards. He sold out when he signed on with Agora Financial. Now he's just another ranting alarmist trying to get ri...
What's Killing the Jobs Market?
13 SepJ.0
It is hard to know where to begin to respond to your comment Recusant. You do not seem to understand how markets work. So, I'll throw out some po...
Most commented articlesFavoritesMore...
World PM Newsflow
ALL
GOLD
SILVER
PGM & DIAMONDS
OIL & GAS
OTHER METALS