China and India are the two biggest purchasers of gold on Earth. But why is gold so important to these countries? Which country buys more of it? Let’s take a closer look at the gold markets of India and China.
The Indian Gold Market
A large portion of India’s gold market is in jewelry. In 2015, Indians purchased around 668 tons of it—nearly a third of the total global demand. Gold plays a significant role in both the traditional and practical aspects of India’s culture, which makes it a very popular commodity.
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One of the things that drives India’s gold market is wedding season. This runs between October and December, and one of the traditional gifts to give a bride is gold jewelry. Not only a sentimental gesture, but a practical one; if the woman later divorces or becomes widowed, her gold provides her with an asset she can live on until she’s able to get back on her feet.
Farmers in India also tend to buy a lot of gold, for a similar reason. Once they’ve sold their crops for the year, a percentage of their profits is used to buy the precious metal. Then if a storm, drought, or other disaster wipes them out, or there’s a meager harvest, their gold provides a cushion to tide them over.
Finally, there’s the five-day Hindu festival of lights, Diwali. Sales generally soar during this time, as buying gold is part of the holiday’s traditions, and is said to bring good luck.
The Chinese Gold Market
For several years, India and China were neck and neck when it came to gold sales. But since 2013 China’s surged ahead. Last year the Chinese imported over 1,000 tons. In fact, around 40% of the gold mined each year goes to China.
While India’s gold market is rooted in tradition, China’s buying spree is much newer. In 1950, private citizens were forbidden to own gold; a ban that continued until 2004. When it was finally lifted, many Chinese citizens were eager to buy, after being prohibited from holding this asset for over 50 years. In fact, in 2009, the Chinese government began actively encouraging its citizens to own both gold and silver—and they’ve done so enthusiastically.
Like India, most of China’s gold is in the form of jewelry, but gold coins and bars are very much in demand as well. In fact, not only is China now the top consumer of gold in the world, and the number one importer, the Chinese also produce more than any other country.
The only respect in which China doesn’t lead the pack is gold reserves—a title that goes to the United States. As of the first quarter of this year, we hold a little over 8,000 metric tons. Though China has been largely secretive about their own gold holdings, current estimates put the figure at just under 1,800 metric tons in reserve.
That said, one advantage both the average Chinese and Indian consumer have is an inherent understanding of the important role gold plays, particularly during periods of economic hardship. While inflation devalues currency over time, gold generally increases, maintaining its buying power. This makes it a great asset to have as a backup if your other investments do poorly, whether they’re weak crop sales or sagging stocks. A reserve of physical gold will keep you from losing your nest egg during troubled times, and protect you against any impending financial disasters, whether personal or global.