If central banks are in thrall to gold’s glitter, why not others?
We could be looking at a long phase of demand outpacing supply
Recently, two international organizations published their assessment of India’s labour market and employment situation. Two weeks ago, the International Labour Organization (ILO), in collaboration with the Institute for Human Development (IHD), released the focusing on youth employment. Shortly thereafter, the World Bank released its
(SADU), with a focus on jobs. These two reports attracted attention for the concerns more than confidence they expressed. One is reminded of the quote attributed to Nobel laureate Daniel Kahneman (who passed away recently): “The brains of humans and other animals contain a mechanism that is designed to give priority to bad news.”
For any government, employment creation and raising living standards are more important goals than economic growth. Economic growth is a means to an end. It may not be a sufficient condition, but it is indeed a necessary one. In that respect, India has done a stellar job of restoring economic growth after the huge pandemic that hurt GDP growth and job creation. Has this growth recovery also restored dynamism to the engine of job creation? The answer is yes. Before we go there, let us look at India’s historical record in job creation. The RBI-KLEMS database, with its 40plus years of annual numbers, allows data analysis.
Over the 42 years between 1980-81 and 2021-22, non-farm employment in India grew at a compounded average annual growth rate of 3.16%. If we split this into pre- and post-millennium periods (1980-81 to 1999-00 and 2000-01 to 2021-22 respectively), the growth rates are 3.37% and 3.13%, respectively. There is a slight decline in the growth rate in the new millennium, but it is not large.
As stated in its report, the concern of the World Bank is that the employment ratio in South Asian economies, including India, has declined in the new millennium. The report defines it as follows: “The employment ratio is the ratio, in per cent, of total employment, to the working-age population. The working-age population is defined as the number of people aged 15–64 years.”
When we try to replicate their work, we get interesting results. We calculate the employment ratio as the ratio of India’s overall employment (sourced from RBI-KLEMS) to the total population (15-64), taken from the World Bank database. Sure enough, the ratio has declined by about six percentage points from 64.1% to 58.2% between 1999-00 and 2021-22. Remember, RBI-KLEMS data is available only up to 2021-22. However, the story is different if we calculate the non-farm employment ratio. The non-farm employment ratio has increased by 7.6 percentage points. It has gone up from 25.7% to 33.3%. This is healthy.
The decline in the overall employment ratio is due to a decline in agricultural employment, which is normal for any developing economy as labour resources are reallocated from the primary to secondary and tertiary sectors. Agricultural employment picked up sharply in India in 2019-20 and 2020-21 due to reverse migration caused by the shock of the pandemic. It began to reverse in 2021-22. I had written about it earlier
on these pages.
India’s job-creation machinery is healthy and functioning. Investment in physical and digital infrastructure and the skilling of people have strengthened it, particularly in manufacturing. In 2021-22, manufacturing industries added 3.74 million jobs and our calculations show that the trend continued in 2022-23. According to the
the National Employability Test score for India’s final year or pre-final year tertiary education students improved from 33.9 in 2014 to 51.3 in 2024.
Consequently, India’s graduate-youth unemployment rate, which had declined from 35.4% in 2017-18, the first year of the Periodic Labour Force Survey (PLFS), to 28.0% in 2022-23, should fall further in the coming years. The unemployment rate for secondary to higher secondary education youth has declined even faster, from 19.4% to 8.7% during the same period. Indian youth are taking to tertiary education in large numbers. Women and rural youth are driving this more than men and urban youth. As the data shows, they are seeing higher returns to higher education and more job opportunities.
The PLFS is released annually and covers the period from July to June. The IHD-ILO report has acknowledged the quality of India’s labour market indicators, including that of the PLFS, which T.C.A. Sharad Raghavan did well to point out in a recent article (alturl.com/uqgtf).
One more positive trend with respect to employment creation needs highlighting. The World Bank’s mentions, “Larger establishment sizes in non-agricultural sectors have been associated with significantly higher long-run non-agricultural employment ratios.” In this respect, India’s Annual Survey of Industries is encouraging. Larger firms (employing 100 or more workers) have increased more than smaller firms (employing less than 100 workers). Between 2014 and 2022, the share of factories with more than 100 workers rose by 4.4 percentage points to 20.8%. The total number of factories in 2021-22 was a little over 200,000.
Further, as of 2021-22, nearly 80% of the workforce in Indian factories registered under the Factories Act is employed in factories with more than 100 workers. The total number of such factories is a little under 42,000, and the total number of workers employed by them is nearly 10.8 million, out of a total factory worker base of 13.6 million. Given this large base, it is even more heartening that the workforce in these factories grew at an annual rate of 4.0% between 2014 and 2022, compared to the annual growth rate of just 1.2% in the workforce of factories with less than 100 workers. This means more job generation and not less.
In recent times, manufacturing employment peaked in India in 2011-12 and troughed in 2016-17. The manufacturing sector was sluggish in creating jobs between 2012 and 2019 because the Indian corporate sector was dealing with bad debts and not investing. Although a gradual and tentative recovery in manufacturing employment began in 2017-18, it gathered momentum only post-covid. We expect it to accelerate in the coming years.
In short, the twin shocks of bad debts in the banking system and corporate de-leveraging followed by the big covid shock caused temporary but significant setbacks to the Indian labour market. But these are on the mend, and recovery in the jobs market has commenced, as borne out by data.
The focus now will be on the extensive skilling of Indian youth in massive numbers, enhancing labour productivity and creating more jobs with benefits and social protection. India is aware that there are miles to go and promises to keep to ensure that its demographic dividend accrues and can be encashed. The country is on the right track.
Afew weeks ago, when the gold price hit a record high, no one besides a few gold bugs seemed to care. Bitcoin also hit a record high. Everyone cared. Proof came in the personal finance pages of UK papers. The had a piece on investing in crypto miners, a long read on what crypto still gets wrong and a cry of pain for UK investors denied the right to hold Bitcoin exchange-traded funds (ETFs).
had almost a full page on how to buy. Bitcoin also made it into the
and got good exposure in the too. Unless I missed it, none of these papers had an article on gold. In March, it rose 9.1% (against 14% for Bitcoin and 3% for global equities) and this week the yellow metal hit yet another record high again to a remarkable lack of interest.
I get it. Gold isn’t digital; it doesn’t have a growing gang of evangelists or its own emoji; and it isn’t new money. It’s very old money—one of the oldest. At Fitzwilliam Museum in Cambridge last week, I saw a few gold coins introduced by Croesus, King of Lydia, in about 550 BCE, a gold coin minted to mark the Olympic Games celebrated in Macedonia in 242, a Sicilian gold quarter-dinar from the 970s and a couple of gold struck by the Agra mint in 1619. You get the picture. Very old money. But that you are more likely to see actual gold coins in a museum than in your purse doesn’t mean it doesn’t matter. For proof, look at who is buying gold today.
A good proxy for gauging ordinary investor interest is flows into global gold ETFs. And according to the World Gold Council, these collectively saw outflows for nine months in a row until the end of February. This year alone outflows have added up to around $5.7 billion, with the US and Europe seeing the fastest pullback and the collective holdings of the ETFs being around 20% below their level of October 2020. There are some signs that this antigold vibe is bottoming out. February’s exodus was lower than that of the previous few months; there have been small inflows into Asian ETFs every month for the last 12 months; and according to Charlie Morris of the research shop ByteTree, there may now even be small inflows.
For gold demand, look to emergingmarket savers and central banks. Both have been “mega-buyers of bullion” since the start of the Ukraine war, says Duncan MacInnes of Ruffer Investment. They don’t buy ETFs. They buy physical gold. In China, for example, there is a new trend among the young to buy tiny 24 carat beads or ‘beans’ every month as a form of long-term saving, something gathering pace as faith in the investing potential of property fades.
Central banks aren’t in it for the short term either: they don’t buy gold to trade. They are buying it for the long term to hedge political risk; to underpin their own currencies; to offset any decline in the value of the dollar; and in place of US government bonds, which given the rate at which the US is accumulating debt ($1 trillion every 100 days, says Bank of America) are no longer deemed to be free of risk. Looked at through the eyes of an emerging market central bank, gold is something very special, an everything hedge—and one that in the main has hung on to its role as money and its purchasing power for thousands of years.
In an increasingly complicated world, who wouldn’t want some of that?
Overall, central bankers are both volume buyers (1,000 metric tonnes annually for two consecutive years) and, to put it in, Bitcoin language, HODLers (a cryptocurrency fan play on hold which stands for ‘hang on for dear life.’) Might it be, asks Ruffer, that we are entering a new era for gold of “price insensitive strategic buyers taking ounces out of the market that will never return?” One in which increasingly limited supply meets rising demand?
If so, and if the rising price starts to pull retail investors in the West who have little or no exposure to gold right now back in, there seems little to stop the gold price continuing to soar.
How do you invest? There are ETFs, of course. But the miners are also worth looking at. Back in early March, John Hathaway of Sprott Asset Management pointed out that the entire gold-mining sector in the US had a market capitalization of less than that of just Mastercard Inc—and not much more than Nvidia Corp rose in a single day when it last reported earnings. They’ve begun to move a little since: The iShares Gold Producers ETF is up 17% since a double-digit decline in 2022. But it’s still way off the highs of 2011, something that makes little sense given the rise in the metal itself. There could be fireworks ahead for those miners. But either way, it might be worth putting a little gold in your portfolio. If it’s a good enough everything hedge for China’s central bank, it should be good enough for the rest of us.