Asia

In gold we trust

A jewellery shop owner counts gold bangles before putting them in a locker.

Most of the world's gold is still used for jewellery, and one country buys more bling than any other.

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In the cool weather of the first few months of the year, India’s wedding season swings into high gear. Indian brides and grooms of means like to stage lavish celebrations, and on display at those nuptials is another grand Indian love affair: gold, for which the country has had a long-standing affection. India is the world’s biggest consumer of the commodity, and much of it goes into women’s jewellery.

Gold has been a global star asset over the past five years, and with so many investors, analysts and mining executives attempting to predict what will happen next to its price, it’s never been more crucial to understand the sources of demand for it. This makes the banquet halls of India hard to ignore. Yes, the influence financial speculators and central banks have on the price of gold is intriguing, and often dramatic in the short term, but straightforward consumer demand is still the largest factor.

According to the World Gold Council, which represents 27 major gold producers, 68% of the worldwide demand for bullion over the five years from 2004 to the end of 2008 was for use in jewellery, compared with just 19% for investment purposes and 14% for industrial uses. On a geographic basis, the council says that East Asia, the Indian subcontinent and the Middle East accounted for 70% of global demand in 2008.

In India and that other gargantuan gold-loving country, China, the traditional affinity for keeping a large portion of family wealth in the metal remains as strong as ever. As people’s personal incomes increase in those two countries and in other developing nations, the middle classes will save more, thereby boosting demand for gold and sustaining its price. India’s annual economic growth rate has averaged 8.6% over the past five years. Although the pace has slowed recently, it will likely return to that level by 2012.