India’s Middle Class
India is the second-largest consumer of gold in the world, with a cultural affinity stretching back centuries. It is also undergoing rapid change, a trend that could have profound implications for its economic power, influence in the world and demand for gold.
India has the potential to become the fastest-growing economy in the world over the next three decades, with average annual growth of between 5% and 6%. Per capita income is set to rise to about $38,000, while the population is expected to reach more than 1.7 billion by 2048. This growth will not only make the Indian middle class the biggest group in the country in numerical terms, but will also transform it into a major driver of economic, political and social growth.
So, as India grows and becomes more developed, its middle class may play an important role in shaping society and politics, as well as its economy. The pace development will have a direct impact on gold demand, as the potential purchasing power in relation to the precious metal could be one of the largest in the world.
What About China?
China is also a massive economy, now the world’s 2nd largest, that should be taken into consideration when thinking about the future of the gold market. Together with India, China makes up over 50% of current global gold demand.
Research by the World Gold Council suggests that China’s nominal GDP will reach about $63 trillion by 2035, accounting for 26% of the global economy. It will then increase to $160 trillion by 2050, accounting for 30% of the global total.
Additionally, China is likely to focus more heavily than it has done in the past on innovation and research, so technology is likely to account for around 50% of economic growth by 2030. Not only does gold play a part in the development of technology, but one could reasonably expect more innovative products based around gold to be brought to the market. This can be seen in the relative success of both the Shanghai Gold Market and the Shanghai Futures Exchange.
Of course, both India and China’s economic development will face several complex risks over the next 20 years, so nothing is guaranteed. But the signs of this pent-up demand are there based on a long, historical cultural affinity with gold and means to participate more fully in gold investing.
The Investment World
Financial markets have changed dramatically in the past 30 years, and there’s no reason to suggest it won’t continue doing so. Developments in technology will – and have already – facilitated access to more asset classes and investment strategies, with execution and purchasing becoming easier and cheaper than ever before. In conjunction with increased urbanisation and better education, we can reasonably expect that improvements in technology will also expand the investment universe – and this of course will apply to gold investing as well.
Futures, ETFs, Structured Notes giving investors exposure but not ownership to gold exist firstly because of the constant demand for gold. Secondly, however, they also exist because of the difficult access the physical gold markets.. This has now changed so it would not be surprising to see such products fade as investors begin to realise they can enjoy the real feeling of ownership, rather than have ownership of a fund or structure, with many links in the chain, that gives them only exposure to gold.
The twin forces of new demand from emerging economic powerhouses like India and China, as well as other emerging economies, and the democratisation of access to gold through technological innovation now combine to ensure in the future new channels of demand are being created. Previously, gold as an investment was the preserve of the financial elite, of financial institutions big enough and operationally capable enough to meaningfully invest. Regular people either had to buy overpriced coins of varying purity or to buy jewellery. Now people in both developed and emerging economies are able to participate in gold investing.
And as long as the current policy environment remains, with monetary expansion and low rates more and more people will allocate their precious wealth to the precious metal.