India’s Gold Mania

lfb.org / By Douglas French / January 8, 2013

Less than 1% of the world’s gold is mined in India. The rest comes from somewhere else. Still, India can’t get enough. It is the largest consumer of gold in the world, buying nearly a third of production in recent years. Some estimates say that 10% of all gold is held in India.

Indians save roughly 30% of their income, as opposed Americans, who save 5%. Plus, Indians are getting richer all the time. Once a very poor country, the rich and middle classes now outnumber the poor in this nation of 1.2 billion. The country has the sixth-largest economy in the world.

If people are left alone, high gold demand going forward is a lock.

Yet India’s policymakers are disturbed. Yellow metal purchases have widened the country’s current account deficit to 5.4% of GDP.

The Reserve Bank of India (RBI) has produced a report indicating “a need to moderate gold import, as the insatiable appetite for the yellow metal could jeopardize economic stability,” reports BullionStreet.com.

So the Indian government and its central bank are trying to get people to buy other financial products. “There is a need for banks to introduce new gold-backed financial products that may reduce or postpone the demand for gold imports,” the RBI report said.

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