muses of the moment

January 27, 2009

How other cultures save money

Filed under: Long term investing, Odds 'n ends — totallygroovygirlfriday @ 6:51 pm

Yes, most other countries in the world, save and invest money, even the lower classes. In the US, we borrow money to live.

A few interesting things about world wide physical gold sales (including coins, jewelry, and bars).

  1. India’s demand for gold has declined (in 2008).
  2. China’s demand for gold has increased, surpassing India.
  3. The US Mint (and other national mints) are limiting the type of gold coins for sale and rationing out to dealers what they do produce.
  4. US Mint raised their premium for gold coins to dealers. It now costs the dealers more above the market price of gold to purchase coins.

My comments:

India is a nation that buys gold jewelry for special occasions, like weddings. When the price of gold is really low, they will purchase gold jewelry as an added investment/saving vehicle. Gold in India is not cheap right now as their currency has lost purchasing power. They have no extra money to invest in anything.

Conclusion: India is experiencing economic uncertainty and many lower classes can not afford the luxuries. And the middle classes are cutting back.

China is a country of savers. They save over 40% of their income. They are prospering as nation, but the average Chinese still has this saving mindset. Save and save by buying gold. China has a long history of saving in gold. Gold is a consistent store of value. It is movable. They consider gold, like the early nineteenth century average US citizen considered bonds. It’s something you don’t sell, ever, you pass it along to the next generation.

The Chinese may be buying more “stuff”, but they are still saving more of their income than almost any other nation globally. If the Chinese have any type of economic panic, they will buy more gold, not less and they will not sell it. 

Conclusion: China is buying gold as a way to hold and preserve savings. 

In the US demand for gold coins is up. In the fall of 2008, coins had a 30% premium on the secondary market, if you could find them. Now the US Mint is cutting back on types of coins in production and raising the prices that dealers can buy them for. These two items will make gold coins even harder to find and purchase in the future in the US. I don’t think this is an accident.

If US citizens can not store their wealth in physical gold, they will buy ETFs (in US Dollars) and other investment vehicles in US Dollars. If the US Dollar loses value, the only option for an individual living in the US to product their wealth is to buy actual gold and silver. In other countries is is much easier to purchase other more reliable currencies than the local one, usually the US Dollar, or precious metals. Most banks in every other country will hold savings in one or many currencies.

It is not so easy in the US and it is getting harder. By the time the Dollar really takes a dive, it will be impossible. Unless….you already have it.

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