While gyrations in the price of gold have been in the news lately, another news item has concerned continued gold purchases by consumers in China and India. In both cases, the citizens of these countries have an appetite for gold that seems to have been stoked by the recent decline in the price of gold. While there are varying reasons for such purchases, as discussed below, the strong demand for the yellow metal from China and India shows that gold is truly a global currency. If the price drops on markets in one or more countries, the demand for the precious metal in other countries where gold is highly regarded is likely to pick up, as has been seen recently.
What’s Behind the Demand for Gold in China and India?
In both countries there are cultural factors which undergird the demand for gold. In India, gold has long been a prized possession and a prime feature in gift giving during auspicious times of year, and for major events such as weddings. This provides the impetus for a fairly constant demand for the metal throughout the year, as even during non-auspicious periods Indian families may buy gold if the price drops for future use.
In China, the historical lack of a government pension scheme has led to Chinese families using precious metals such as gold as a way to preserve wealth and prepare for retirement. After being prohibited from owning gold for many years once China fell under communist rule, the authorities have in recent years allowed Chinese citizens to purchase gold and this has led to an upsurge in buying in the country, both by its citizens and by the Chinese central bank. While the central bank does not update its purchases on a regular basis, the last update it gave showed a large increase in the purchase of gold by the bank to add to its reserves.
Globalization and Rising Income Levels in China and India
Another factor that should be remarked upon when it comes to Chinese and Indian gold demand, is the impact the process of globalization is having on the incomes of consumers in these two countries. With manufacturing, customer service, and other business processes being outsourced to these countries, the average income of consumers in
China and India has risen. With more spending money comes the ability to make more purchases of desired items. As explained above, with cultural factors in favor of holding gold, either for retirement or wealth preservation purposes or for the giving of gifts on auspicious occasions, consumers in both China and India have voted with their wallets by purchasing large quantities of gold recently.
While this was likely driven to some degree by the recent decline in the price of gold, giving buyers the chance to buy at what they might consider “bargain” prices, the cultural factors that favor the purchase and holding of gold in these countries seem likely to persist. With hundreds of years, or more, of tradition behind the tendency of Indian and Chinese consumers to buy and hold the yellow metal, gold dealers in these countries seem likely to be in business for some time to come.
Harry is a gold investment analyst with a true passion for precious metals. He has been working in the financial industry for over 25 years. Today, he contributes on various financial boards and enjoys writing about current political events and how they affect the gold investing landscape.
