Emerging Markets and Gold Part 2: China and India
It is always advisable to be a little cautious around the hype of emerging markets. Yet, the numbers are impressive and really show the swiftness of growth and the potential size compared to more mature markets in the West countries.
For example, during the Industrial Revolution in the United Kingdom, it took almost 150 years for GDP per capita to double. As the United States took over the growth mantel, its GDP per capita took over 50 years to double.
In Asia, the time to double GDP per capita since the boom started in the early 1990s, has been between 15 and 20 years. And the growth keeps coming.
A generation ago, millions in these countries struggled to make ends meet, and led a subsistence existence. In the next few years, over half the inhabitants in these countries will be what could be defined as consumers. This means they have disposable income. This is a phenomenal change in such a short period of time.
For the gold market, the two emerging market countries that stand out are India and China. Let's take a look at these two behemoths.
1. Emerging market country: India
With a population of 1.3 billion, India is the world's second most populous country, and the world's largest democracy.
India's cultural attachment to gold is well known. As the world's second-largest consumer after China, India has to import most of its gold. Indeed, only energy imports exceed the value of imported gold to India annually. India consumes approximately 20% of global supply.
Indian's love of gold is for several reasons.
Firstly, gold has proved a reliable asset and currency for Indians. This is especially important as India is still relatively underbanked compared to the rest of the world. Gold acts as a deposit for mortgages, as savings, and as a means for payments. Indians save in gold, while many in the West do not, yet.
Secondly, the cultural and religious significance is vitally important. The Hindu calendar has specific days when gold is traditionally purchased. Additionally, gold is also bought during specific festivals. It is also the symbol of the Hindu goddess Lakshmi. Furthermore, it is frequently given as a present at weddings.
Thirdly, gold is considered a major status symbol and sign of success and prestige.
Gold's role in India is deep and cultural as well as deeply religious. No other country has such an affinity for gold that is so embedded within the culture.
2. Emerging market country: China
Although China is the world's most populous country at just under 1.4 billion people, it is forecasted to lose that crown due to its relatively disadvantageous demographics compared with India in the coming decades.
Regardless, China remains and is forecast to remain the world's no. 1 producer (11%) and consumer (28%) of gold. China, in fact, has to import 66% of its gold despite it being the world's top producer.
China's progress from an agricultural society to a modern, urbanised economy has been nothing short of breath-taking. Compared to India, China's love of gold is a little less historical and cultural though that is still significant. Gold is traditionally given and births and weddings. The Lunar New Year and golden Week (October) are also strongly related to an increase in gold purchases.
China is not new to gold either. It was one of the first to introduce gold coinage in around 1,100 BC. However, it is only more recently that gold has become more embedded in the culture. Previously, gold had to compete with jade and even bronze for prestige.
Yet, the development of a consumer middle-class and the recent opening up of the gold market have combined that many Chinese now view gold as part of their savings as well as a status symbol. It is these sources that continue to ensure that China's status as the no. 1 gold player, both as consumer and producer, will endure.
Beyond the Big Two
It is common for people in the West to underestimate how deep the love for gold is in Asia, but also other emerging markets. As emerging markets become richer and more powerful gold's prominence in global affairs and in the minds of newly minter consumers will only increase. In the coming months, the Goldex Academy will look into the relationship between gold and China, India and other emerging countries in further depth.
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