ANZ: Chinese, Indian Citizens Buying Physical Gold

In a recent report, ANZ covered the unexpected endurance of physical gold demand, even amidst a rise in price (a devaluation of currency). This resilience is largely attributed to unwavering interest from major markets such as China and India, in which citizens have been buying up gold regardless of price.

Here are some highlights from ANZ’s report:

China's Strong Demand: China had a notable 16% year-on-year increase in gold consumption which reaching 959t in 2023. This demand is attributed to a growing interest towards gold as a means of value preservation amid economic uncertainty.

India's Continued Interest: India saw a slight decline in gold consumption in 2023, but it remained close to pre-pandemic levels. This stability is supported by the continued interest from an expanding affluent population.

Consistent Global Consumption: Despite reaching record-high prices, global gold demand remained steadfast at 3,057t in 2023, closely mirroring the average of the past decade.

Price Sensitivity and Outlook: Despite the resilience shown by physical demand, the sustained high prices pose a challenge to further demand growth, particularly in critical markets like China and India. Continued high prices may hinder significant expansion in demand.

ANZ's report underscores the remarkable resilience of physical gold demand. While this resilience speaks to the appeal of gold as an investment, ANZ suggests that substantial demand growth may be limited unless there are notable shifts in price dynamics. The outlook indicates stable demand, reflecting a delicate balance between motives for value preservation and consumer sensitivity to price fluctuations.

What they missed:

What ANZ neglects to cover is that China and India are very old civilisations that have seen empires, governments, and currencies come and go. There is an ingrained knowledge and culture in these countries around owning physical assets. Gold is seen as a way to have independence and safeguard wealth in families. It is also culturally significant, being a sign of prosperity and good luck. It may prove extremely difficult for even the banking industrial complex to change these cultures and create the same reverence for fiat paper or digital tokens controlled by central banks.

The other aspect of physical gold that ANZ neglected to highlight is that the price of gold is not necessarily rising. It is the fiat currency that they measure gold with that is devaluing. This could be all the more reason for Chinese and Indian investors to be trading in their fiat currency for physical gold. The view that gold is high and must come down implies that the value of a fiat currency is stable, which is fundamentally untrue.

As the NASDAQ has shown signs of slipping on the weekend, and gold has strengthened, ANZ’s theory will be put to the test. Will the fiat currencies bounce back in value? Let’s have a look at how the Australian Dollar has held up against gold across the last 17 years:

Gold/AUD price chart 2007-2024