India’s Golden Monsoon

Indian goldThe all too crucial monsoon season in India is on pace for a record year.  The crops that need the rain will now be overflowing in the coming months.
Translation – higher yielding crops for Indian farmers means higher physical gold demand in the market…

 

By Rory Hall, The Daily Coin:

India’s love of gold is no secret. The India demand for gold, as the worlds second largest consumer of gold, is one of the driving forces of golds global exchange rate. As the Indians demand more physical gold it naturally pushes gold to a higher rate. China, over the past few years, has become the dominate consumer of global physical gold demand. As we recently reported, on Shadow of Truth, China moved 51.8 tons of physical gold in a single day. The day before this monster sized volume of physical gold moved through the Shanghai Gold Exchange the Chinese managed to consume 29 tons of physical gold. Any way you slice it, that’s a lot of gold demand.

 

Yesterday we learned the all too crucial monsoon season in India is on pace for a record year. The monsoons in the Indian subcontinent play a major part in how well the overall economy of India is going to perform for the next year. The crops that need the rain will now be overflowing in the coming months. Translation – higher yielding crops for the farmers means higher physical gold demand in the market.

We learned from Forbes just how strong the monsoon season has been and what that means to the physical gold market.

Because of the above-average monsoon, gold spending in India is expected to increase 11 percent in 2016/2017 over the previous September to August crop season, according to Thomson Reuters. This would help reverse weak second-quarter jewelry demand in India due to a gold jewelers’ strike that closed the market for six weeks early in the quarter, a new 1 percent excise duty on jewelry and rising prices.

Gold has Rallied 26% Year-to-Date

With the excise tax instituted back in March 2016 this has kept demand, for above board gold, weak. As we recently reported there is an estimated 300 tons of smuggled physical gold that has moved into India already this year. What will that be once the crops begin to be converted to gold? The wedding season has not been cancelled, nor has the festival season been put on hold. The demand for physical gold, either through legitimate channels or the black market, is full on. The real question is this – will a projected 11% increase of physcial gold translate into gold moving 11% higher from its current 26% YTD increase? That would produce one of the largest upside moves in gold in recent history.

If anyone thinks the government of India is going to somehow change the habits of more than 1 billion people who have treasured gold since the beginning of time it may be time to reassess that thought. Not going to happen, not today, not ever. The Indian demand for physical gold is not leave out the other regions of Asia that have just as strong a tie to gold. The citizens of China, Vietnam and United Arab Emirates to name but a few. With China moving 29 tons and 51.8 tons of gold in two days are we seeing the beginning of a physical gold run? There is only so much gold, at this current exchange rate, that will come to market. The only thing that will bring more gold to the market is a higher rate of return. Personally, the exchange rate for gold is going to have to be much, much higher for me to even consider returning any to the market. And even at higher exchange rates what will you get when your gold goes back into the market? Worthless, paper fiat currency.

We find another passage from the Forbes article that supports this idea

Since before recorded human history, the people of India have had an insatiable appetite for gold, treasuring it not only for its flawless natural beauty and religious significance, but also as a superb store of value.

This tradition carries on today, with India’s demand for gold jewelry in 2015 reaching more than 668 tonnes, nearly a third of total global demand and second in size only to China.

India and China Dominate Global Gold Jewelry Market

I’ve pointed out many times before that the price of gold is largely driven by the Love Trade in India. Demand fluctuates year-to-year depending on several factors, the two most significant being the number of Indian weddings held in the fourth quarter and the amount of crop revenue that’s generated as a result of the summer monsoon season.

If you review the above chart you see a very dramatic difference in where gold is going. China and India leave very little for the “rest of the world”. The demand coming from these countries is truly something to behold.

The Chinese government continues to make acquiring gold as simple and as easy as walking into a bank and asking for a 30 gram coin or bar – it’s just that simple. The challenges India faces, while it is mostly to do with government taxes and nonsense, it is still very easy to acquire gold. Here in the U.S. physical gold and silver are only available in a limited number of online resources and brick and mortar coin shops one has to seek it out instead of it being part of everyday life and part of the landscape. How would that change the demand for physical precious metals if gold and silver were available in the banks?

Get physical gold bullion at these current lower rates and let’s see what happens!! We know the Indians and Chinese are scooping up all that comes to market, why shouldn’t we?

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