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India Set to Become World’s Fifth Largest Economy, Leapfrogging France and England

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Earlier this month, World Gold Council chief market strategist John Reade said he expects gold to shine in 2018, and one of the primary reasons will be rising income growth in China and India.

A report recently published by the Centre for Economics and Business Research lends support to Reade’s prediction. According to the 2018 World Economic League Table, India will leapfrog France and England in 2018 to become the world’s fifth largest economy in dollar terms. The report also predicted that China will overtake the US as the world’s biggest economy in 2032.

China and India rank as the number one and two gold consuming countries in the world. It stands to reason that strong economic growth and rising income in these Asian nations will boost demand for gold.

According to Reade, China’s income growth is expected to come in at around 6.4% in 2018. And  India is expected to be one of the fastest-growing countries in the world next year, expanding at an even faster rate than it did between  2012-2014.

 Over the long run, income growth has been the most important driver of gold demand. And we believe the outlook here is encouraging.”

While you may think of gold as a luxury item, many Indians view it as a necessity. In the Asian nation, buying gold is not just for the rich. In fact, a recent survey shows owning the gold is a universal phenomenon across all income classes in India. The yellow metal is interwoven into the country’s marriage ceremonies and cultural rites. Indians also value gold as a store of wealth, especially in poor rural regions. Two-thirds of India’s gold demand comes from these areas, where the vast majority of people live outside the official tax system. This explains why even the poor buy gold in India.

As incomes grow, they’ll likely buy more gold.

Economic growth in China and India are part of a broader shift of economic power from the West to the East. According to a Reuters report, “India’s ascent is part of a trend that will see Asian economies increasingly dominate the top 10 largest economies over the next 15 years.”

As we reported last fall, gold is an important part of Russia and China’s bid to undermine US economic hegemony. Many analysts believe Russia and China are buying gold specifically to minimize their dependence on the US dollar. The two countries are also reportedly moving closer to developing a gold-based trading system. And according to numerous reports, China is prepared to launch a yuan-denominated oil futures contract, perhaps before the new year.

Whether these political and economic maneuverings will be successful remains to be seen, but as Reade said, the sheer growth of the economies in China and India, and the rising incomes and increased purchasing power of populations devoted to buying gold, will almost certainly increase demand for the yellow metal over the long term.

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