One positive driver for gold this year is the fact that the country has had a heavy monsoon. The rains that started in June covered most ofIndia at the fastest pace in more than 50 years. About 70% of the annual rainfall in India happens from June to September, and a strong monsoon season usually means a bumper crop, which boosts farmers’ incomes.
That could increase gold buying as well, negating the government’s efforts to quell India’s gold-buying habit. Historically, good monsoon seasons have been associated with strong gold demand. “In 2010, the last year that rains were heavily above average, demand soared 37% in the fourth quarter after harvests,” says Reuters.
In the rural areas ofIndia, there is little access to banking networks, so gold is used as a store of wealth, says Reuters. And with half the population in India employed in agriculture, it’s no surprise that 60% of all the gold demand in the country comes from these rural areas.
India’s rural community has seen a “hefty rise” in income this year, reports Mineweb. But instead of buying gold, Mineweb says Indian farmers may purchase land due to gold in local currency reaching “dizzying heights.”
Particularly over the past few weeks, as the currency faced increasing weakness, gold in rupee spiked. Over the past three years, gold is now up 58% compared to gold in the U.S. dollar, which rose nearly 12%.
Despite this possible short-term threat to gold demand, keep in mind the East’s long-term sentiment toward the metal, as this area of the world has a different relationship related to both the Love Trade and the Fear Trade. And it’s not easily broken.