Chinese, Indian Gold Demand Driven By Rising Wealth, Savings Mentality

Posted 9/20/2011 by Allen Sykora

Montreal– (Kitco News) — A cultural affinity for gold coupled with expanding economies and individual wealth are likely to mean continued strong demand for the metal in the key nations of India and China for years to come, speakers told the London Bullion Market Association Tuesday.

One session was titled, “China & India—the Evolution of Golden Giants.”

The citizens of both nations are only enjoying higher incomes that mean greater consumer spending, including luxury items, the speakers told the LBMA annual conference in Montreal. Further, they have a natural propensity toward saving, particularly without a retirement program such Social Security in the U.S.

In fact, the Chinese save 38% of their disposable income, while the people of India save 29%, according to one graphic shown to the audience.  The U.S. rate was listed as 3.2%.  As the Chinese build their savings, they are faced with low interest rates at banks, a stock market not performing well and limitations on real estate and foreign investments, the audience was told.

“Where else can they turn to?” asked Albert Cheng, managing director, Far East, for the World Gold Council. “We saw in the last year, they put some of it in gold.”  Wai-Chan Chan, director and partner in the Greater China office of the global strategy consulting firm OC&C, described a rapid urbanization and “remarkable” economic growth in China. The country recently became the second-largest economy in the world.

“Fifteen years ago, rush hour was bicycles. No one had a car. Look at it now,” he said, showing a slide with bumper-to-bumper traffic.  For the 20-year period beginning in 1990, per-capita spending grew at a rate of 11% a year, he said. By contrast, the growth was 4% in the U.S. and U.K. and 3% in Germany and France. In particular, the so-called “luxury” market has “exploded” in China, he said.  “Chinese consumers are spending more on gold jewelry, due to higher willingness to spend, better product offering and (the) investment function of gold,” he said.

India has an ingrained cultural affinity for gold, further helped by macroeconomic factors, said Rujan Panjwani, president of Edelweiss Financial Services.  He cited estimates that Indian households have hoarded an estimated 20,000 metric tons in the form of ornaments. Gold ornaments account for some 10% to 15% of the cost of an average Indian wedding, he said.  And, he added, there is a likelihood of 125 million to 150 million weddings in the next decade.  Further, he said, the lack of Social Security and scarcity of insurance or pensions has also made India a nation of savers. Yet, the country of more than 1.2 billion people has only 350 million bank accounts.

“Where do you save? Cash under your mattress? No,” he said, then offering one of the answers: “Gold.”  An estimated 7% of India’s $256 billion in total household savings is currently held in gold, he said, citing the McKinsey Report. In 2010 alone, Indians bought 963 metric tons of gold worth an estimated $38 billion.  Like China, India has a rapidly growing economy. Gross domestic product is headed to an estimated $2 trillion for 2011 from $473 billion in 2001, and is expected to be $4.5 trillion by 2021.

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