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Global Market Risk and Long-Term Return History will Continue to Drive the Demand of Gold

Alistair Hewitt, Director, World Gold Council, discussed about global market risk that has been impacting the demand of gold at present, and what could drive the demand of gold in long term. He believes that product differentiation is key to sustain with changing consumer behaviour. He is also highly optimistic about future growth of ASEAN gold market. Excerpts…

According to you, what kind of global risk that could impact directly or indirectly global financial market vis-à-vis global gold market?

There is no doubt in 2018 there are lot of risks in the horizon in the global market. Lot of investors are worried about equity valuations are stretched; investors are even worried the kind of risks people already have taken in the financial market. People concerned want to balance their portfolio having an allocation in gold. There is no doubt that risk environment will bring lot of people into the gold. But if we look at the bigger picture, risk is just one factor, which will drive in some investment in gold. The other factor is long term return. If you look at from Mid 1970s, it is driven by rise of wealth – more people have become richer, and having more money to spend, they go to buy gold in various forms, jewellery, gold bars and coins. So, risk is one factor and second is long term return which will be big factor for gold investors.

In next 30 years’ time, where would you like to see Asian gold market stand?

 Two things will happen – market will be different and it will be surprising. In our long-term report, we try to look at big structure of factors impact the global economy affecting the gold industry, and try to extrapolate from there what is important. I think there is no doubt that China and India are important in gold market today and will continue to remain so. Both the countries have huge affinity towards gold and over the next thirty years we see income levels are rising in those countries. Look at India, arguably it will benefit from the large demographic dividend the world has ever seen. So many youngsters are entering into the workforce, middle classes are booming. These factors are hugely important for global gold market in next thirty years.

Do you think new generation Indians and Chinese will remain to be equally attracted to gold?

There is no doubt that different generations have different attractions. if you look at attitude of ‘baby boom’ of 60’s, that is very different from millennials that we see recently. If you are into consumer business, you need to be alert against those change of habits among your consumers. You need to understand how their attitude is different. There is no doubt that young generation has certainly different taste compared to their forefathers when it comes to gold. So, consumer facing industries need to understand how consumers are changing and adopt their products and marketing strategies. But, dipping down, gold has been around thousands of years and it is embedded with the society all over time. So, there will remain strong cultural connection with gold, but certainly it will change.

We have seen rise in gold buying by some central banks in recent years. What is your observation on this particular aspect?

Turkey, Kazakhstan, and Russia are countries who have increased their gold buying in recent time. One of the reasons for having gold in reserve is that it is a fantastic hedge against US dollar, and secondly, it is nobody’s liability. If other people’s debt is denominated in different currencies, I expect that country to pay me back in some point. With gold, I do not have that exposure; I have vault full of gold underneath my central bank. These are two factors driving lot of central banks to increase their gold reserves.

What is your assumption about the future growth of the ASEAN gold market?

ASEAN is hugely exciting gold market. There is huge enthusiasm in the market to grow.  In fact, we have already seen some positive growth in this year. Thailand has experienced the strongest economic growth since 2012 driven by export; Vietnam has grown at 7.5 percent. I think the momentum is building. If you look back on the significance of gold in many regions, it is really strongest and embedded. I feel the foundation is strong, but there are clearly challenges. One of them certainly change in behavior of consumers which we discussed earlier on. 

How did you enjoy the conference?

It is a really enjoyable conference. I am impressed by the kind of enthusiasm by the attendees to share ideas. This is a huge potential market for growth and at the same time, standard needs to be built and policies need to be placed to support the network. So, it has been wonderful conference and Albert Cheng and SBMA have really done an excellent job.

Disclaimer: Views are personal and not the views of the publisher.