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India Monsoon Season Could Make Gold Demand Grow

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Gold just wrapped up a strong quarter, up 13%, and finishing at the highest price level in over eight years. On the year, gold is up about 16% and many mainstream analysts are starting to eyeball record gold prices in the coming months. But there has been some drag on the gold market, particularly sluggish consumer demand in the East – particularly in India.

That could be changing.

India saw 18% more rainfall than average in June as the monsoon covered the entire country nearly two-weeks earlier than usual. This bodes well for India’s economy. As Reuters reported, “Monsoons deliver about 70% of India’s annual rainfall and are the lifeblood of its $2.9 trillion economy, spurring farm output and boosting rural spending on items ranging from gold to cars, motorcycles and refrigerators.”

According to the India Meteorological Department (IMD), soybean, pulses and cotton-growing regions in central and western parts of the country saw 31% more rainfall in June. Rice, coffee, rubber and tea growing regions in southern India received 8% higher rainfall. As of the last week in June, farmers had planted double the hectares planted last year when the monsoon season arrived late. According to Reuters, cotton sowing was up 165%, while rice planting rose by 35% during the period.

An IMD official said India will likely see elevated rainfall in July as well.

Gold has been at record highs in rupees squeezing demand for gold in the world’s second-largest market. Demand plunged to three-year lows in 2019. But a good rainy season and correspondingly strong agriculture output could jumpstart the Indian economy and revive demand for the yellow metal.

Simply put, a good monsoon season is good news for Indian farmers, as well as for the broader Indian economy. And when rural Indians have money in their pockets, they buy gold.

Collectively, Indian households own an estimated 25,000 tons of gold. 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.

Gold is not just a luxury in India. Even poor people buy gold in the Asian nation. According to an ICE 360 survey in 2018, one in every two households in India purchased gold within the last five years. Overall, 87% of households in the country own some amount of the yellow metal. Even households at the lowest income levels in India own some gold. According to the survey, more than 75% of families in the bottom 10% had managed to buy gold.

Gold is the lifeblood of the Indian economy. Even now, it is serving as a valuable source of liquidity during the country’s credit crunch.

A boost in Indian gold demand could be even further upward pressure on gold prices, even as central bank monetary policy drives the yellow metal higher.

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