Today, close to two-thirds of the global demand for gold comes from emerging markets. The two largest players in this segment are China and India. China’s annual gold consumption averages about 1,120 tons per year while India’s is roughly 800 tons.
This means that understanding the future of gold as an investment requires a clear picture of what the future of these two countries holds.
Here, we look at the major economic initiatives driving the development of China and India and the implications of those plans for gold investors.
India’s ascent remains strong. At their current trajectory, they are well positioned to surpass the US and earn the title of the second-largest economy on the globe in the coming decades according to research from PwC.
The researchers project that India’s share of world GDP will surge from 7% to 15% by 2050.
A key trend underpinning this growth is the mass urbanization of the country. Research from McKinsey supports this idea with the authors explaining that “it’s clear that when urbanization rates in districts or in states cross the threshold of about 35 percent, that’s when we start seeing productivity benefits kick in.” This phenomenon fuels emerging economies because large city centers are what tie a country into the global economy and ultimately lead to a rise in GDP per capita.
Moreover, with increased urbanization comes robust infrastructure growth as demand rises for schools, housing, and hospitals. Bringing these kinds of infrastructure projects to life creates additional jobs for manufacturers, contractors, suppliers, and builders.
Cumulatively, this outgrowth tends to increase spending power among consumers which, in turn, leads to increased demand for luxuries like electronics and jewelry both of which require gold.
China’s economic growth has exceeded the global average for much of the last 15 years. Recent projections from the IMF show that the country could become the top growth source for the world in the next five years with “the nation’s slice of global gross domestic product expansion is expected to represent 22.6% of total world growth through 2028,” according to reporting from Bloomberg. Like India, this growth is likely to increase the spending power of the considerable consumer base in the country.
However, at the same time, some believe that China’s economic future is uncertain given the collapse of the real estate market. And yet herein lies the power of gold; it can perform well in good times and in bad.
Consider that Chinese gold prices recently reached record highs as part of an extended rally as more citizens seek to offset the depreciating value of the yuan against the dollar. This comes amid the Chinese government’s decision to ask their largest banks to reduce deposit rates, in an effort to boost the economy. This action has prompted more citizens to seek other ways to preserve their money. Additionally, greater control over the purchasing power of the U.S. dollar has accelerated gold purchases.
The developments occurring within these countries can be just as influential to gold prices as many of the more talked about economic factors unfolding in the U.S. like inflation, interest rates and robust GDP growth.
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