India's Monsoon-Gold Link

Why Gold Prices are linked to India's monsoon rains and festival calendar...

WHAT IS THE CONNECTION between Gold Prices and the monsoon rains? asks Geena Paul at Commodity Online in Mumbai, India.

Cynics may say both are unpredictable. But Gold Prices and the monsoon rains have a very strong bond. Because India is the biggest private consumer of gold in the world, and the country has an agriculture-based economy. The weather really can impact Gold Prices.

India has a lot of farmers living in villages who are dependent on the monsoon rains for a good crop. So a good crop for farmers means good things for the Indian economy. If Indian farmers get good money for their crop, the first thing they do – to protect their saved profits – is Buy Gold.

This year, India's weather office has now predicted, we should expect normal rainfall in the June-September monsoon season. That raises hopes of a rebound in farm output – and a big leap in India's gold demand.

According to the meteorological department, rainfall is likely to be 98% of its long-run average. Good monsoon rains would help raise output of soybeans, sugar, corn, rice and cotton, and reduce food inflation. That would boost purchasing power in rural India.

Still the strongest gold-buying nation in the world, India imported around 800 tonnes per year at its peak. A tad lower than normal in the past year, after recovering from 2008's fifty-per-cent drop, gold buying would likely rise on a good monsoon.

Silver demand will also see a rise following the monsoon season in India. India's silver imports were about 1,300 tonnes last year. But in India, gold has the prime place in farmers' investment choices, because they consider gold an auspicious purchase.

Indians believe that on some special days, Buying Gold will bring prosperity to their homes. The spring festival of Akshaya Trithiya is one such occasion (falling on 27 April 2009, it arrives on 13 May 2010). Then comes Diwali, another good occasion to Buy Gold that comes after the harvest. If good rains bring good crops, there is chance for more celebrations in rural India. Indian families also give gold to their daughters when they get married.

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