Gold and the India Factor

While September has traditionally been a poor month for equity markets, it is not the case for gold as the recent surge past $1,000 an ounce reached earlier this week attests.

Interestingly enough, one of the biggest factors in the bullion market may be India.

"Typically, September is the strongest buying month for the Indian wedding and festival season," a note from the mining team at Canaccord Adams said Wednesday.

Indian weddings typically occur between late September and March, and jewellers will also buy gold for the Hindu festival of Diwali, the Festival of Light, which falls in October, November or December.

However, there are some factors in the country this year that could put downward pressure on the market.

For one, the rupee has depreciated almost 10% compared with the greenback in the past year, and with gold's asking price rising 14% in the same period this translates to a 26.5% jump in price for Indian consumers.

"This price increase could exclude some price-conscious Indian consumers from the bullion market this year," the note said.

As well, India is experiencing one of lightest monsoon seasons in years, down 29% between June and August. Monsoons typically account for 80% of the country's rainfall, and with farming accounting for 18% of India's GDP and employing 60% of the population, a poor crop can curtail spending to a large degree.

In 2002, when India's monsoons fell only 19%, the country's GDP slowed to 3.8% from 5.8%, so the impact of 2009's dry monsoon season could well be even more significant.

Comments

[one eye:]

Good analysis from the Indian Consumers point of view.

I really appreciate these types of arguments, "the Road not followed" so to speak. Thank you/

Sep 10 10:10 AM

[NUCLEAR1929:]

I know that in India only scrap gold is booming, but not new buying at this prices. The recycling was never good indicator for GC to go up.

Sep 10 10:20 AM

[GMiki1:]

India's role has given way to China's. The Chinese government is now encouraging citizens to buy gold and silver. This will have a big impact on the PM markets.

Sep 10 11:34 AM

[dieuwer:]

"Price-conscious" Indian consumers may wait for a drop in the price of gold that may never come. What are they gonna do if the rupee keeps plunging? What are they gonna do if the price of gold keeps rising in rupee terms? Keeping waiting???
How about panicking and dumping rupee to buy the last milligram of gold!

Sep 10 12:25 PM

[Thomas J. G...:]

This article shoudl present some evidence that Indian consumption of gold is such an overwhelming portion of global demand, that wedding habits in that country could move the price. 1000's of years of Indian weddings have occurred and the gold price is what it is.

Sep 10 12:48 PM

[Mistrofan:]

yes - "the gold price is what it is". It increased since 1970 by an annualized rate of 6.33%.


On Sep 10 12:48 PM Thomas J. Gordon wrote:

> This article shoudl present some evidence that Indian consumption
> of gold is such an overwhelming portion of global demand, that wedding
> habits in that country could move the price. 1000's of years of
> Indian weddings have occurred and the gold price is what it is.

Sep 10 01:19 PM

[ThetaTrade:]

...a large part can be attributed to the 30%+ rise just this past year.

Sep 10 02:13 PM

[bogoMIPs:]

gold bugs getting hungry now, so they will be dumping their "fools gold" at $985, $970, $940, whatever it fetches in its latest plunge. I love it

Sep 10 08:02 PM

[User 85937:]

gold price is not what it was, you must look at inflation adjusted chart for real price.

Sep 17 04:14 AM