China and India: Gold's Big 21st Century Win
Friday, 1/31/2025 11:29
How Chindia helped gold investing beat stocks, bonds, silver...
GOLD for central banks, ETFs and fear,
writes Adrian Ash at BullionVault.
Those are the top three No.1 reasons why
anyone choosing to invest in gold won the 21st Century so far.
But as we said in the first part of this first-quarter review...repeating a key point from
the LBMA's pre-Christmas seminar I chaired...let's not forget private demand in China. Or India.
I mean, over the past 25 years of gold investing, how could you? Least of all when
New Year's Day in China just saw
gold prices in India hit new all-time highs?
Ask any analyst or gold investor and they'll tell you:
Demand from the citizens of gold's giant Asian consumer nations has grown over the past quarter century.
But see how it mirrored private demand from the G7 economies of Europe, the USA and Japan? Who knew that?
Time was, some pundits called the world's 2 most populous nations 'Chindia'.
The term was coined in the early 2000s by Indian politician and columnist Jairam Ramesh. He
urged China and India to cooperate, rather than compete, to accelerate their inevitable re-emergence as world-leading economies after 3 centuries of Western dominance.
Ten years later, Ramesh called his idea of
Chindia "still vibrant". By then, it had also become a topic of policy and intellectual debate for Chinese and Western academics and policymakers, plus a much blunter target for US marketing gurus and 'how to' books to help you exploit these new "megamarkets".
Chindia has since become a romcom movie (set in the USA), and last year it was
used against Ramesh himself in a row over New Delhi kowtowing to Beijing!
But 2 decades ago, this chimera also proved useful to Western investment analysts, especially in precious metals. Because while
India had long been the No.1 gold consumer nation, China was catching up fast.
See where China's private gold demand overtook India?
See how that's where it stopped tracking the Dollar gold price, too? It leapt most dramatically when Chinese households and investors seized on
the gold price crash of 2013...
...coincidentally the last time that Chinese horoscopes celebrated the Year of the Snake.
Let's park that for today. Because for gold so far this century, the word Chindia meant something important which didn't need nuance or understanding, so long as it kept buying gold.
Which it did. Most of all when the West did not.
By weight, private-sector gold demand in the G7 rich-world economies grew or fell together with demand from Chindia in only 11 of the past 32 years, barely 1/3rd of the time.
Across the first half of that period (shown in our first chart above) that figure read 50%, but it sank below 19% in the second half. And last year, 2024, was the first time in almost a decade that gold demand among households and investors in both Chindia and the G7 grew together. (Or so our guesstimates reckon today.)
Taken apart, in contrast, China and India show strong co-movement in their private gold demand. Their purchases have grown or fallen together by weight in 16 of the past 25 years (64% of the time) with barely a break between 1998 and 2007 or 2013 to 2022.
By weight, however, China's private-sector gold demand has outrun India every year since the big price crash of 2013. Or so the best available data say.
On that, please note:
- Demand for jewellery isn't counted the same way as demand for coins, bars or gold ETFs. Trinket purchases are gross of reselling (ie, scrap) whereas the 'investment' category is net;
- There isn't any freely available or reliable recycling data for jewellery, not country-by-country. So like the World Gold Council (who publish the data now gathered and crunched by specialists Metals Focus we're using above), our charts and analysis lump gross jewellery in with net investment. Sorry;
- All private-sector gold demand in China ultimately starts on the Shanghai Gold Exchange, the only legal route for bullion to enter private circulation. But India's government has no such pinch-point (or stranglehold) and cross-border smuggling makes the true size of private-sector demand ultimately unknowable. Indeed, smuggling explains how gold prices inside India have consistently run below the global price plus India's import duty and GST sales tax;
- Maybe more importantly, these figures don't include private-sector demand for vaulted gold bullion either. That has almost certainly leapt in China during its real estate, stock market and bank interest rate slump (now entering its 4th year). But it doesn't show up anywhere in hard data; indeed, the gold sitting on commercial bank balance sheets has actually shrunk, most likely because China's financial slump means investors now want to own allocated bullion (such as you buy and sell on BullionVault) rather than holding a mere promise which underwrites the bank, not the investor's portfolio;
- On top of all this, the numbers and charts above do not include central bank demand. Partly that's because we're focusing on private-sector demand, and partly because the 'true' figures for the People's Bank are contested and unknowable. Very possibly, they account for some of the gap between heavy imports and visible demand.
That said, so might China's commercial bank holdings, allocated to 'gold accounts' for Chinese investors. And central bank buying might not make much difference to the big picture anyway.
Remember, the idea of Chindia was simple, meaning stupid and blunt.
It matched the early 2000s' 'commodity supercycle' or 'BRICS' marketing spin spun out by Goldman Sachs, and it enjoyed the same impetus too. Because oil prices, cheap exports and gold prices were all driven higher...or so the story goes...by the sudden switch to runaway capitalism by formerly communist/socialist Chindia.
That switch saw over a billion people released from poverty. One of the first things they chose to buy with their new disposable income is gold. Or so the story goes.
Yet as our chart above shows, the proportion of Chindia's soaring economic output which was spent on physical gold actually fell into the 21st Century...
...before recovering its early 1990s' levels as the Western banking sector's "global" financial crisis saw gold prices surge...
...only to drop back again across the past decade or so.
Yes, the value of cash spent on gold by China and India has jumped since the turn of the Millennium. But it hasn't grown as fast as their GDP. Across the past 33 years, in fact, the first two 11-year stretches saw Chindia spent 0.68% of their joint economic output on gold, but that has fallen to 0.51% across the past 11 years.
Bottom line? China and India have played a huge part in
gold's success as the 21st Century's No.1 asset class so far. But they could've been bigger. And odds are, long term, that they will be...
...whether or not the proportion of income and wealth they spend on gold rises...
...as Chindia's GDP continues to grow both in cash terms and relative to the early 21st Century's rich-world economies.
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