A while ago I wrote about how the Chinese people were buying more and more gold coins and gold bars.
Here is an excerpt from that post:
“The total amount of household savings invested in gold has grown from about $200 billion in the late 1990s to $1.2 trillion in 2010. Jewelry demand alone has more than doubled in the last seven years to 451.8 tons in 2010, from 224.1 tons in 2004.”
Well, something similar is happening in India.
The import of gold in India rose 222% between April and May of this year, compared to a year ago. In the month of May alone, imports of gold and silver were valued at $9 billion, with gold demand growing 25%.
What is behind this massive increase? In part, it may be about increased availability of gold bullion. As of the start of 2011, some 30 more banks in India have been granted permission to import gold and silver. Jewellers are finding it easier to access supplies, passing on that easy availability to their customers.
However, that alone doesn’t account for the increase we are seeing in gold bullion and jewelry purchases across India.
Another reason – and this applies to both India and China – lies in the cultural differences between these two countries and the West.
Over here in North America we might gather together and boast about our equities portfolios, while in India they are more likely to attend special social and cultural events boasting their wealth in the form of the gold jewelry they wear.
Beyond the cultural differences, or perhaps as part of them, we should look to India in particular as a barometer of what is happening to the world economy.
In India concerns about the economy can quickly translate into an increase in the purchase of gold. While here in the West we are more likely to keep trusting Wall Street, our banks and our investment advisors, whether they deserve that trust or not.
Put simply, we stick with the financial instruments we are familiar with – bank accounts and equities, and hope for the best. Here in the West the idea of putting some of our wealth into gold is still something of an oddity. It’s not something most people do. It’s outside of our usual investment repertoire.
It’s for this reason we should look overseas, particularly at countries like India, where a sudden move to gold is a sure sign of falling confidence in banks and equity-based investments.
When gold purchases increase dramatically in India and China – and they are – we would do well to take that as a warning and buy more gold for ourselves.
Remember, we live in a global economy now. What happens in other parts of the world is closely connected to what is happening here at home.
Further reading…