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Gold Rush Isn't Fueled by India

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Changing times have permeated culture and commodities.

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Much of the movement with gold (GLD) recently has been attributed to the gold demand originating from India.

This demand is based on expected seasonality of weddings and festivals, but if it's expected, isn't it already built into the price?

I think some of this demand is being fueled by the wealth effect arising from the recent stellar rise in the Indian stock market.

However, there's a seismic shift occurring in the traditional gold jewelry demand in India, and while this is largely a topic of sociological interest, the markets will always be, in time, influenced by such sociological and psychological societal shifts.

Here are some important trends:

1. Indian households have always viewed gold as a safety net. However, now there are several competing asset classes for the high savings rate the country is known for (30% of income is saved) -- namely stocks and real estate.

Widespread interest in stocks is fairly recent -- only about 10 to 15 years old -- and many young households now have active stock holdings (compared to the older generation). And while real estate has always been on the Indian dream list, the latest exponential rise in prices has diverted some added interest away from gold.

2. The significantly higher participation of women in the workforce has spawned demand for different kinds of jewelry.

Instead of having a small expensive collection as their grandmas did, the new Indian woman is being lured by other kinds of jewelry – including diamonds and costume jewelry (probably thanks to the Western influence).

Getting in lockstep with the rest of the world has meant that consumers view affluence in a different way: cars, computers, expensive interior decorators, and clothes and bags with international flavor. And the growing presence of international companies from the US and Europe is a testimony to that. As a result, India remains one of the largest consumer-growth areas for companies like Nike (NKE).
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Position in GLD, SLV

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