The Indian Monsoons Are Late, And This Impacts … Gold!?
According to Met, monsoon is late and is expected to be below average for the first time in four years. This is potentially significant as the strength of the monsoon is obviously vital to the quality of the harvest and this in turn dictates the amount of funds that the farming community (which constitutes more than half the Indian population) gets when the harvest is in. Gold has traditionally been one of the primary purchases for the Indian agrarian population (although it is now having to compete to some extent with white goods, electronics and holidays), who typically account for between 60% and 70% of Indian gold purchases. A poor harvest will undermine gold buying and crop failures have already been reported.
Indian Jewelry demand for gold is way off – only 25% of recent average
According to World Gold Council figures, in the first quarter of the year scrap supplies were so strong that demand for investment bars and coins net of scrap was negative, with a return to the market of 17 tonnes, while jewellery demand for the quarter stood at just 34 tonnes against a quarterly average over the previous five years of 133.5 tonnes.
Tom’s take: While interesting, I think this news is already reflected in market prices. I’d be a buyer of gold in the low 900s or GLD as a proxy. One reason overwhelms all others: China wants the Yuan to be a serious, internationally respected reserve currency. They can’t achieve that without additional Gold reserves. The value of the gold China owns relative to the value of their foreign exchange reserves or the currency outstanding is very, very small. While I am not an inflation hawk just yet, like so many, many others are, some gold holdings are good insurance against loose money driving the price level higher or another failure like Lehman Bros. (something I consider highly unlikely)
