Not much will.
While the bullish case for buying gold bullion as a store of wealth primarily centers on financial protection from central bankers’ dirty deeds of the West, as well as the gold accumulation by central bankers of the East, little is mentioned of the Indian retail market and how this market will play a major factor in keeping gold supplies tight for many years to come.
Instead, China’s burgeoning “middle class” has been the talking point for make the case for everything going up—as with the “peak everything” theory—from oil consumption, base metals, food, John Deere tractors, pharmaceuticals to hair gel.
Gold demand for China is, you guessed it, going to go up, too, and not just from China’s central bank accumulating as much as it can before the world’s major reserve currencies no longer serve as reserves, but from the buying power of China’s emerging middle class too.
India, however, is another market—the market of many individuals, which comprise the big buyer, which is poised to grow by mind-bending numbers of tens of millions during this decade. India’s 1.1 billion population is going middle class, just as everyone knows China’s 1.3 billion population is.
But Indian culture (Asian culture, in general) stands apart from other cultures in that gold is synonymous with wealth. Indians have never heard of Maynard Keynes and his “barbarous relic” propaganda and economic theories which center on the premise that politicians are uniquely qualified to manage a people’s currency. Indians know better.
“The rise of India as an economic power will continue to have gold at its heart. India already occupies a unique position in the world gold market, and as private wealth in India surges over the next ten years, so will Indian demand for gold,” World Gold Council (WGC) managing director for India and the Middle East, Ajay Mitra said in Mumbai in late March.
While stockholders of the West saw their holding swoon in 2008, India was buying gold on the big dip, importing between 700 metric tons and 800 metric tons of the precious metal in 2008, or approximately 30% of total global demand. Two years later, in 2010, India imported 963 tons. And according to Albanian Minerals president and CEO Sahit Muja, India is expected to break the 1,000 ton mark.
At that rate, approximately 10% increases per year, the World Gold Council’s recent estimate of India’s gold imports reaching 1,200 tons by 2020 appears to be an easy slam dunk. If India remains in its present trajectory, gold imports into India will reach 2,240 tons by 2020.
If India leveled off to the expected 1,000 tons this year, that amount is more than three times the UK’s 310.3 tons of total gold reserves held by the Bank of England, and is on par with China’s officially stated gold reserves of 1,054 tons, according to the World Gold Council’s 2010 statistics. In fact, in any one year, India’s gold imports would rank it somewhere between sixth and eighth, globally, in total banking reserves.
Since 1997, India’s GDP growth has averaged more than 7% per year, according to the World Bank, and correlated strongly with India’s gold imports during that 13-year period. And according to the World Gold Council, the strong upward trend is expected to continue.
“We predict that the new demand for gold will be driven by rapid GDP growth, urbanisation, the emergence of a strong middle class and a sustained and potentially rising savings rate of 30%-40% of income,” WGC’s Mitra said.
And according to Marcus Grubb, managing director at the WGC, the emerging middle class buyers of gold will number in the tens of millions by the close of this decade.
He told MineWeb in mid-May, “With the building of infrastructure, with the increased urbanisation of populations – in India you are probably going to see another 100 million Indians move into urban conurbations in the next ten years, you are going to see the middle class go from 15 million to possibly as many as 90 million by income bracket in 10 years. Indian households will probably be 4 to 5 times wealthier than they are today in ten years time.”
So as gold bugs ponder whether the International Monetary Fund (which reports holding 2,827 tons of gold as of the close of 2010) will make another surprise announcement of its intentions to dis-hoard a measly 100 tons of gold in its alleged attempt to shake some longs out of their gold holdings, remember that India presently needs that nearly each month just to satisfy its population’s demand for the precious metal.
And considering gold supplies have been declining, falling 4.4% in the first quarter of 2011, year-over-year, to 872.2 metric tons, according to the WGC, with future supplies expected to struggle from declining all through this decade, how will demand from India, alone, be met with available mining and recycled gold supplies in the coming years?
As gold prices rise amid growing demand and tight supplies, wouldn’t high prices, at some point, kill demand? One would think so.
But in Indian culture, “gold will remain auspicious given its connection with tradition, whether religious or attitudinal, will remain powerful,” said Mitra.
He added that Indians lean toward being risk averse, and religiously view gold as a traditional means of wealth preservation, which inspires security and stability to the people of India. It has been so for thousands of years.
“Therefore, the view that Indian demand for gold will be driven by the concept of enduring value, not price,” he said.