Focus on Fundamentals: Rain Could Make Gold Demand Grow
Analysts say demand for gold in India will likely rise in the second half of the year thanks to a good monsoon season. Increasing demand for gold in the world’s second-largest market could help boost overall global demand for the yellow metal.
According to NDTV, monsoon rains hit Kerela at the end of May. This was a few days earlier than usual and bolstered an optimistic outlook for agricultural and economic output.
The India Meteorological Department forecasts this year’s rains will come in at 97% of the long-term average. IMD defines normal rainfall as between 96% and 104% of a 50-year average. The monsoon season brings about 70% of the country’s annual rainfall and is crucial to farm output, economic growth and consumer spending.
“Rural demand for gold will see a boost only if monsoon doesn’t break consistency in the most crucial months of July and August … Upcoming wedding season starting from November will also play a deciding role,” Arihant Capital Markets researcher Gaurav Katariya said.
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.
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 last year, 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.
Overall economic growth in the rapidly expanding Indian economy should also boost gold demand. Analysts at the World Gold Council cited rising incomes in India as a factor that will drive increasing global demand for gold in the future. 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.
It’s easy to get caught up in the latest headlines on the financial networks and expectations about what the central banks will do next, but it’s important to always remember the fundamentals. Increasing demand for gold, along with shrinking gold production, are important factors to consider when analyzing the gold market.
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