The Monsoon Factor. What Impact on the Gold Price?

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Some 66% of India's cultivated land area is directly dependent on the monsoon and so it impinges on local affluence and by extension, gold purchases.

According to the Indian Meteorological Department, this year's South West Monsoon advanced over the Andaman Sea on May 11th, which is almost ten days earlier than the normal date, and reached Kerala on May 28th, four days earlier than usual. By June 10th, it covered most parts of North-East India and by the end of June the majority of the country had been affected. The monsoon withdraws in a south-easterly direction, with typical withdrawal dates running from early September in the north west through to mid-October in the South-east....

Why is this significant? Because some 70% of the Indian population lives in rural areas and the quality of the harvest is a direct function of the monsoon. Some 66% of India's cultivated land area is directly dependent on the monsoon and so it impinges on local affluence and by extension, gold purchases. India typically accounts for 20% of the world's total gold demand in any one year and gold market watchers thus have to take account not just of the dollar, geopolitical risk and a host of other factors, but also of the weather in South Asia! If the rainfall from the monsoon season comes in at only 94% of the long-term average this year then the harvest is also likely to be below the long-term average, but any shortfall is likely to be small and the general prognosis is that the harvest will be a good one. The 2006 monsoon, for example, was unevenly distributed, but the food grain harvest increased by approximately 3.6% while sugar cane and cotton increased by 20%....

According to figures compiled for the World Gold Council by GFMS, jewellery and investment bar offtake in the first quarter of this year was 211 tonnes against 141 tonnes in the first quarter of 2006, a sizeable 39% increase by weight and a whopping 74% increase in rupee terms. Whether that rate of offtake can be sustained has to be open to doubt.

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