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The Shape & Future of Indian Gold Demand – Part 1/2

SOURCE: [ Gold Seek] - The survey report notes that Indians own 20,000 tonnes of gold worth $1 trillion.

Household gold consumption appears to have gone up to $45 billion in 2011 from $19 billion in 2009. To put things in perspective, India's gross domestic product (GDP) is inching closer to $2 trillion. This means, the value of gold held by Indians comprises nearly half of the country's GDP.

Gold accounts for one-third of the household portfolios Morgan Stanley surveyed.

The love of gold in India goes far beyond a simple source of future profits. It’s an expression of wealth, financial security and family stability. It also carries religious overtones. In addition it reflects his attitude to business, government and government bureaucracy. The net result is a structure that’s oriented to family and financial self preservation.

The Family and its Financial Attitudes

The family in India is the core of Indian society. Grandparents and parents are the Elders who are deeply respected even amongst the most educated urban Indians. Their offspring usually follow their recommendation, even on family investments. The family sits at a level of importance that is far higher than governments. Family finances are not linked, almost unbreakably, to the banking system as in the developed world. Morgan Stanley indicates that the demand for gold will be split equally among investments and `life events' (which includes marriage or other ceremony, religious occasions, gifting, fashion statements and the like) and discretionary consumption.

The report adds that in 2012, gold demand for life events is expected to increase by 50% pushed by an increase demand from rural India. Consider the belief that ‘gold brings good fortune’. In 2000, the gold price was just under $300. It now stands at $1,600. Imagine you are the mother of the bride and look at your gold holdings and at today’s value. Wouldn’t you feel this had served your family well and must surely serve your daughter’s daughters as well? This belief will continue for generations to come and Indian demand will continue growing.

The developed world financial structures do not transcend the family financial traits. Indians, (wherever you find them in the world) deal in cash, their businesses and income of no concern to outsiders particularly the corrupt bureaucracy of India.

Hence Indians hate credit and love cash.

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