Data shows that in almost all emerging markets (which may be defined as ‘countries that are transitioning from the “developing” phase to the “developed” phase’), diversifying one’s portfolio with gold is essential due to its long-term outperformance compared to equities.

As can be seen in the table below, gold has delivered superior returns in local currencies across emerging markets (EMs). The main drivers for this superior performance are chronic challenges like economic and political instability, which often weaken currencies and boost gold prices.

The only EM that has bucked this trend is India, whose relatively stable currency and stronger equity performance have enabled local stocks to beat gold. But this need not be the case over different time horizons, and in the future.

The current landscape of gold investment in EMs

Gold has reached new heights as of 2024: by May, prices had soared to approximately $2,427 per ounce, reflecting a 17% increase since the beginning of the year. As of 11 October, gold was at a remarkable $2,657 per ounce.

This surge has largely been attributed to robust investment demand from EM central banks, particularly countries like China, Turkey, and India.

Central banks are increasingly diversifying their foreign exchange reserves away from traditional fiat currencies like the US dollar and euro, mainly due to geopolitical tensions and economic uncertainties. In fact, central bank purchases now constitute about 25% of total global gold demand, having doubled since 2022.

Here are two additional statistics that highlight the growing importance of gold in EMs:
● In the first half of 2024 alone, gold purchases by central banks reached a staggering 483 metric tons, marking a 5% increase compared to the same period in 2023. Just 3 EMs, namely Turkey (30.1 metric tons), China (27.1 metric tons), and India (18.5 metric tons) were collectively responsible for purchasing around 75 metric tons.

● China's physical gold demand spiked 68% year-over-year during Q1 2024, totaling 110 metric tons, the highest level seen in over seven years.
In conclusion, investors in EMs cannot afford to ignore gold at this point. This is also true for Indian investors looking to mitigate risks while targeting handsome returns.

For more actionable insights backed by data and analyses, we invite you to read the latest edition of Netra in its entirety.