Sunday, June 24, 2012

Indian weathermen are the key to the price of gold. Not, um, the Treasury yield curve.

The 30/2 Treasury chart does correlate rather well to the price of gold. But is it correlation only, or causation? After all, the Rupee chart also correlates rather well to the price of gold.

I mean, seriously - when the average Indian or Chinese is dithering about whether to buy some gold, does he go and look up the 30/2?

Apparently not. India, which accounts for 25% of world gold demand more or less, buys gold based on the monsoon. Cos apparently Indian peasant farmers make up 40%-60% of India's overall gold demand - that's 10%-15% of all world gold demand, which you'd think is a significant enough marginal quantity to drive price.

A good monsoon means good harvests, which means farmers have more money, some of which they plow into gold because they ain't that enamoured with the Indian banking system, and why should they be.

Here's an article from India Times for you:


Gold sales flat as India keeps an eye on monsoon

Here's an excerpt:

India's annual monsoon rains have covered almost half of the country, showing signs of a pick-up after falling short in the first 15 days of the season and easing concerns about the planting of summer-sown crops such as rice, corn, cane, cotton and soybeans.

India's gold demand picks up between August and October, when consumers buy bullion to celebrate festivals, which peak with the Diwali festival of lights in November.

Here's a translation:

It's got nothing to do with the USA and its yield curve.

More info in this Mineweb article about Gold demand in India:

What Indian consumers think about gold: survey

Various excerpts:

The Indian government's attempts to curb gold demand, since gold already represents 72% of India's current account deficit, appears to be working. India's demand for the precious metal is estimated to fall by 4% in volume and rise 4% in value in 2012, according to a report by global bank, Morgan Stanley.

The survey report notes that Indians own 20,000 tonnes of gold worth $1 trillion. Household gold consumption appears to have gone up to $45 billion in 2011 from $19 billion in 2009. To put things in perspective, India's gross domestic product (GDP) is inching closer to $2 trillion. This means, the value of gold held by Indians is comprises nearly half of the country's GDP.

Gold accounts for one-third of the household portfolios Morgan Stanley surveyed. Respondents from several households said they expect gold prices to rise by 8% in 2012. However, an additional 8% to 10% rise would lead to a proportionate decline in volumes.

The survey notes that gold is not the first asset that Indian households liquidate during bad times; it is equities. Gold remains an important asset class for investment, having outperformed most other asset classes over the past five years.

Indian households also are increasing their demand for gold bars and coins. The survey notes rising income is behind the growing share of gold bar holdings.

When speaking about the reasons why they bought gold jewellery in the past 12 months, respondents said auspicious events like marriages and festival accounted for 35%, while investment demand accounted for 20%. Buying gold as a backup for bad times accounted for 16% of those surveyed, while gifting on events was another 15%. 

Around 8% of those surveyed said they bought gold as an impulse buy or bought gold for no specific reason. Another 6% of those surveyed said they bought gold because they were fond of the precious metal.

Translation:

It's not about the USA.

So... how's that monsoon working out?

Here's a June 22 article that seems to say after a dry spell everything's now working out fine:

For Third Year, Normal Monsoon Set to Boost India Harvests (Mumbai)

Some interesting excerpted factoidia:

A drop in global prices of commodities and ample domestic inventory of rice and wheat will help further cool food prices, said Siddharth Kothari, analyst at Sunidhi Securities & Finance in Mumbai. The Standard & Poor's GSCI Spot Index of 24 raw materials tumbled yesterday into a bear market on concern demand for commodities will weaken.

India imported record quantities of sugar, lentils and oilseeds in 2009 following the weakest monsoon since 1972. A below normal monsoon would have prompted the government to review exports of wheat, rice and sugar, Sunidhi's Kothari said.

State reserves of food grain swelled to 82.4 million tons as of June 1 after the nation harvested record crops for a second year, according to the food ministry. Agriculture makes up almost 14 percent of India's economy and a reduced harvest can lower rural incomes, hurting sales of tractors and cars.

Rainfall was 24 percent below average at 73.7 millimeters since June 1, the weather bureau said Thursday. That's less than the 96.9 millimeters average considered normal for the period. The monsoon got off to a slow start this year, reaching the southern state of Kerala four days later than the normal date of June 1.

Rain in August is forecast at 96 percent of the long-period average as weak El Nino conditions may develop in the later part of the rainy season, the forecaster said.

"Rainfall in July and August is still extremely, critical," said Sonal Varma, a Mumbai-based economist at Nomura Holdings. "Given the risk of El Nino conditions emerging, I think monsoon is still a risk, even though the bureau is predicting a normal rainfall."


Translation:

Nope, still nothing about the 30s/2s yield curve here. Seems to be a lot about Indian weathermen though.

If you're still skeptical, try reading that article I pointed you to on Thursday, about gold demand.


5 comments:

  1. Well then the illiterate Indian peasant farmers are making an interesting statement about asset classes aren't they.

    ReplyDelete
  2. An article today validating your thesis...or is that just plain copying from you?: http://www.resourceintelligence.net/negative-forecast-remains-for-gold-india-needs-good-monsoon-to-boost-bullion-demand-euro-integration-steps-outlined/30120?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+Resourceintelligence+%28resourceINTELLIGENCE%29

    ReplyDelete
  3. I'm quite certain that the article could easily have been cobbled together from random sources without the guy ever having visited my blog.

    PS my god, you don't still own US Silver, do you?

    ReplyDelete

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