The last three decades have witnessed a remarkable shift in global gold demand from the West to the East, with Asia's share rising from 45% to nearly 60% of the world's total. Behind this steady migration, lie the two 'super consumers' of gold – China and India, which now account for almost half of the global gold demand.
India: From Restrained to Robust Gold Demand
In the early 1990s, India kick-started a revolution in its gold market, following policy changes that liberalized the sector. From a modest 340 tons in 1992, India's gold demand had more than doubled to 742 tons by 2022, positioning it as the second-largest gold-consuming nation, right behind China.
Gold in India is more than a luxury or investment – it is a cultural necessity. An astounding 87% of households own some form of gold, transcending income brackets. The Indian tradition encourages buying and holding gold, linking it to marriage ceremonies, cultural rites, and as a store of wealth. Rural regions, where the majority live outside the official tax system, account for two-thirds of the nation's gold demand.
China: The Rise of the World's Largest Gold Consumer
China has mirrored India's trajectory. Once banned from purchasing gold, the Chinese saw a lifting of restrictions in the 1990s, and by 2002, the Shanghai Gold Exchange was established, liberalizing the market entirely. Chinese annual gold consumption saw a fivefold increase from the early 1990s, hitting a record high of 1,347 tons in 2013, making China the world's top gold-consuming nation.
The World Gold Council attributes this surge in demand to explosive economic growth, rapid urbanization, and a thirst for simple investment alternatives to domestic offerings. It reflects the intersection of growing affluence with the East's longstanding affinity for gold.
A Broader Eastern Trend: Turkey, Thailand, and Saudi Arabia
The eastward migration of gold is not limited to India and China. Turkey, Thailand, and Saudi Arabia have also reported increased gold imports. Central bank gold buying from the East, particularly China, India, Turkey, and Singapore, has further reinforced this trend.
Western Exports, Eastern Imports
The latter part of 2022 saw Western investors offloading bullion while their Asian counterparts capitalized on lower prices, buying jewelry, coins, and bars. This period saw more than 527 tons of gold leaving New York and London vaults, with Chinese gold imports peaking at a four-year high.
In the East, gold is often the primary form of savings and wealth preservation. For millions, gold remains the 'basic form of saving,' an approach inherited from their ancestors, with the understanding that gold retains its purchasing power over time.
Western investors tend to dismiss gold during periods of financial confidence, often realizing its importance only during a financial crisis. This reactive approach to gold investment, akin to seeking insurance while the house is on fire, can be detrimental.
The steady eastward migration of gold over the last three decades underlines Asia's growing economic prowess and its long-held belief in gold as an unwavering store of value. As the world moves into an increasingly uncertain future, this trend serves as a valuable lesson in financial resilience and the timeless value of gold.
As we witness Asia's dominance in the global gold landscape, critical questions begin to emerge about future implications. One such query pertains to the influence this shift could have on the dynamics and pricing of the international gold market. Could we anticipate substantial fluctuations or a new pricing paradigm dictated by the Asian markets?
Furthermore, the potential impacts of this shift on gold production and investment strategies worldwide deserve exploration. As Asia's power grows, will there be a change in the manner in which gold production is undertaken and how investors strategize their gold investments? These inquiries pave the way for further analysis and discussions about this fascinating transition in the global gold economy.