Friday July 12, 2013 15:38
Editor's Note: Seasoned Metals Analyst, Kira McCaffrey Brecht shares her extensive commodities knowledge on Kitco.com. Kira has been writing about the financial markets for over a decade -- posts during her career include Managing Editor at TraderPlanet, Chicago Bureau Chief at Futures World News, Market Analyst at Bridge News and Technical Analyst for MMS International and Managing Editor at SFO Magazine.
Last week's better-than-expected U.S. employment data triggered a big dollar rally and heightened expectations for the Federal Reserve to begin tapering its monthly asset purchases. But, this is all just "noise" for the gold market.
Long-term gold investors should consider big picture global demographic shifts, which bode bullishly for gold.
Emerging markets are gaining in population growth. And, countries like China and India continue to outpace in gross domestic product (GDP) growth versus the older, debt-laden industrialized nations.
Finally, a younger median population age in countries like India—versus those of many western nations— also bodes bullishly for gold in the years to come. Bottom line? Despite the current downtrend in gold, the yellow metal will maintain and increase its role as a store of wealth and alternative investment in the decades ahead. Emerging markets—especially India—will be a cornerstone of global economic growth and gold demand.
A recently release UN Population Prospects revision report reveals an even larger 2013 global population estimate of 7.2 billion, with forecasts for a 8.1 billion figure in 2025. Significantly, the population of India is forecast to surpass that of China's in about 2028 when both countries will boast populations around the 1.45 billion mark.
When gold investors are considering wealth building, global demographics are an important factor. Chinese and Indian consumers are huge buyers of physical gold. Consider these numbers from the World Gold Council.
"India and China accounted for 62% of Q1 global jewellery demand, generating year-on-year growth of 15% and 19% respectively," according to the World Gold Council.
Also, "Chinese demand in gold bars and coins grew to 109.5t, and more than double the five-year quarterly average of 43.8t," according to the World Gold Council.
Shifting back to the demographic issue, many developing nations boast an older demographic make-up. For example, , according to a Credit Suisse Global Demographics research report the forecast for the median age in 2015 across most developed nations are people in their late 30s to early 40s. That compares to a generally younger trend in emerging market nations. The median age of India's population in 2015 is forecast at 26.9. That compares to Japan at 46.5 and Germany at 46.3. Brazil, another emerging market upstart is forecast is 31.2.
Throw in some GDP growth forecasts to the mix and the emerging markets continue to win hand over foot versus developed nations. For 2014, Credit Suisse forecasts gross domestic product growth at 2.6% in the U.S and 1.2% in the euro area. Meanwhile looking at the emerging market spectrum Brazil is forecast at a 4.0% growth pace, with China at a 7.6% pace and India at a 7.5% pace.
The global winds are shifting from West to East. The population growth is in the East. India will be the largest country in the world within 15 years. Also, the younger population means more productive and economically prosperous years ahead for the rising middle classes in India. Chinese and Indian consumers have been buying gold for hundreds of years and that trend is unlikely to stop anytime soon. As these countries continue to gain economic power and with the population shifts at their back, gold will remain a cornerstone of emerging market consumer's wealth-building strategy.
Don't get caught up with the herd. Consider what the changing global demographic profile can mean for gold. It deserves a place in your well-diversified portfolio.
By Kira Brecht, Kitco.com, follow her on Twitter @KiraBrecht