|
|
There is growing awareness that gold is accumulating in Asia. Indians have for a long time been the largest
buyers of gold and have a tradition of giving gold as gifts at auspicious times. This gold is mostly classified as jewellery in the statistics,
and it is assumed by westerners that a rising gold price will dampen
demand from this source. This misunderstands
the Indian market on many levels.
The reason
gold is bought as jewellery is because the processing costs are very low. It is more accurately a reliable store of
value, which for Indians is the real point. Furthermore,
India’s experience with paper money has not been
happy. Imagine a young
couple who married in the
mid-1960s. The bride might have been given five or six ounces of
gold in the form of bangles
and other jewellery
items. The cost including
an Indian jeweller’s
mark-up in 1965 would have been about 200 rupees
per ounce at pure equivalent, making a dowry of 1,200 rupees (1965
exchange rate was Rs4.76 to US$1.00). Every Diwali, wedding anniversary and birth of a child, the dutiful husband would have bought more gold if he could afford
it. Some would have been passed on to their children as they got married
and had families of their own.
Today the price
of gold is about 95,000 rupees.
As a form of savings gold
has beaten every other investment our Indian couple could have made, hands down. They
would now be in their sixties, and looking forward to a comfortable retirement, centred
on family, children and grandchildren. Contrast this with our
more sophisticated world, with
our underfunded pensions falling short of what we actually need
to live on. Many of us will
rely on the state for a minimal pension, for which the state will heavily tax our
children. And the Western equivalent
of our Indian couple
faces the prospect of their retirement annuity, if they have one, buying less and less as they get older.
So don’t
dismiss India’s
love of gold as just tradition. Indians
in their investment choices have shown considerably greater wisdom than most
of their Western counterparts.
And it is not just Indians; there is the whole of South East Asia, and
the Chinese who have much catching up to do having been banned from owning gold until only eight
years ago. According to Albert Cheng of the World Gold Council, the Chinese public in that short
time have now overtaken Indians as a buyer of gold. The
difference between the Indians and the Chinese is the Indian government has adopted Keynes
as its guru, so it hates gold, thinking its people are backward. The Chinese government instead is encouraging its population to buy more and
more. Between China, India
and all the other gold-loving
countries in South-east Asia,
there are now nearly three billion people
certain in the knowledge that
gold is a far better
long-term store of value than
any paper currency.
The other
conclusion we can draw from this
is that price doesn’t matter. Look what’s happened since gold peaked a year ago: Asian buying
has increased all the time while
Western fund managers and the media have bickered about whether gold is going up or down. But the Asians instinctively know that what is
actually happening is that paper money is going down, and hard experience tells them it never goes
up.
|
|
