LAWRIE WILLIAMS: Asian demand element for gold looking strong
We have already pointed out strength in Chinese gold demand, with the total in the 2021 full year up around 45% over the Covid-hit 2020 level as indicated by Shanghai Gold Exchange gold withdrawal data. Indeed the 2021 total also ended up even higher than the pre-Covid 2019 figure by over 6%. (see: China gold consumption up 45% yoy) China has been the world’s largest gold consumer for some years now, overtaking India back in 2007 and has maintained a comfortable lead since. However last year India showed demand growth to over 1,000 tonnes again, according to some reports. That is the first time that level of demand has been seen for over a decade according to the WGC.
Consider the following paragraphs from a recent World Gold Council (WGC) study:
India is one of the largest markets for gold, and growing affluence is driving growth in demand. Gold has a central role in the country’s culture, considered a store of value, a symbol of wealth and status and a fundamental part of many rituals. Among the country’s rural population, a deep affinity for gold goes hand in hand with practical considerations of the portability and security of [gold] jewellery as an investment.
Gold is considered to be auspicious, particularly in Hindu and Jain cultures. The ancient law-giver Manu decreed that gold ornaments should be worn for important ceremonies and occasions. Aside from Diwali, one of the most important dates in the Indian calendar, regional festivals across the country are celebrated with gold: in the south, Akshaya Tritiya, Pongal, Onam and Ugadi; in the east, Durga Puja; in the west, Gudi Pavda; in the north, Baisakhi and Karva Chauth.
Gold is central to more personal life events too. Gifting gold is a deeply ingrained part of marriage rituals in Indian society—weddings generate approximately 50 percent of annual gold demand.
Recent comments from the head of the WGC’s India division confirm that Indian gold demand has been strengthening as the enormous Indian population has been learning to normalise alongside the virus pandemic. Indian infection figures remain high, but on a per capita basis they remain among the world’s lowest. While total figures on infections and deaths are almost certainly undercounted, even so they are likely to be very low per head by world standards.
The country has seen a recent surge in virus infections that may well have diminished gold take-up in the important Q4, usually a high point for gold demand with key festivals and a spurt in weddings. But, even so, overall gold demand figures for the full year certainly look to be encouraging. Given the overall strength in the Indian economy – thought to be the world’s sixth largest and growing rapidly – and the propensity for Indian gold demand to rise alongside corresponding wage growth, portents look to be strong that gold demand will remain elevated. The Indian central bank, too, has been among the largest consistent monthly purchasers of gold for the past three years, which adds to the nation’s overall gold consumption.
While China and India are by far the biggest global gold consumers, the populations of other Asian and Middle Eastern nations have also had a propensity to invest in gold as an inflation/currency hedge. While these are much smaller scale gold investors, given population sizes of only a fraction of those of China and India, cumulatively they will also be important consumers of gold in a global context.
There seems to have been a movement in the West to liquidate some gold holdings out of the big gold-backed ETFs, given gold’s perceived underperformance against some expectations. However, we would theorise that the apparent growth in gold demand from the East is almost certainly, at the least, balancing the drain of precious metals from these big ETFs. This takes us back a few years when similar gold liquidations in the West were more than counterbalanced by strong Asian demand allowing the gold price to stabilise and then go on to better things. Plus ça change!